Question #83403
Number of Workers Number of Widgets Produced
1 8
2 15
3 21
4 26
5 30
6 33
Acme can get $5 for each widget it produces. How many workers will it hire if the
nominal wage is $38? If it is $27? If it is $22?
2. The marginal product of labour for a certain firm is MPN = 50 – N, where N is the
number of labour hours used in production. The price of output is $2 per unit,
a) If the nominal wage is $10/hour, how many hours of labour will be demanded by
the firm?
b) If the nominal wage is increased to $12/hour, how many hours of labour will be
demanded by the firm?
c) What is the wage elasticity of labour demand for this wage change? (Use the
midpoint formula to calculate the arc elasticity.)
Expert's answer
Running Head: Acme Widget Inc. Production Function
Acme Widget Inc. Production Function
Name
University Affiliation
Running Head: Acme Widget Inc. Production Function
Acme Widget Inc. Production Function
1. Marginal product is the change in production caused by an increase in one extra worker denoted as MPN. Marginal revenue product is the amount of revenue generated for hiring an additional worker, which is given by multiplying MPN by revenue generated by each unit produced.
i. At nominal wage of $38, Acme Widget should hire only one worker because marginal revenue product is $40. If they decide to hire more than one worker the cost of hiring a new worker will be higher than the revenue generated after hiring the new worker.
ii. At nominal wage of $27, Acme Widget should hire three workers because marginal revenue product is $30. If they decide to hire more than three workers
Running Head: Acme Widget Inc. Production Function
the cost of hiring a new worker will be higher than the revenue generated after hiring the new worker.
iii. At nominal wage of $22, Acme Widget should hire four workers because marginal revenue product is $25. If they decide to hire more than four workers the cost of hiring a new worker will be higher than the revenue generated after hiring the new worker.
2. Marginal product of a firm is MPN=50-N
N is number of hours used for production
Output price is $2 per unit
a. At $10 per hour, how many hours does the firm require?
Marginal revenue should be equals to marginal cost per hour.
Therefore, $10 per hour = MRPN=(50-N)2
10=(50-N)2
10/2=50-N
5=50-N
N=50-5
N=45
The number of hours required by the firm at cost of $10 per hour is 45 hours.
b. At $12 per hour, how many hours does the firm require?
Marginal revenue should be equals to marginal cost per hour.
Therefore, $12 per hour = MRPN=(50-N)2
12=(50-N)2
12/2=50-N
Running Head: Acme Widget Inc. Production Function
6=50-N
N=50-6
N=44
The number of hours required by the firm at cost of $12 per hour is 44 hours.
c. Wage elasticity
Elasticity of demand is given by change in quantity divided by change in price.
The wage elasticity of labour demand for is inelastic because it is less than 1.
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