ECON 1B03 Lecture Notes - Lecture 12: Aerial Work Platform, Marginal Revenue, Economic Equilibrium

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4 Apr 2016

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ECON 1B03 Full Course Notes

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The market is perfectly competitive: buyers and sellers are price takers, firm has no control over wages, determined by market supply and demand. A workers contribution to total revenue: mrp = marginal revenue x marginal product, mpl what one worker adds to total output, mr change in total revenue from an additional unit sold. In a perfectly competitive market, mr = p: so mrp = price x marginal product. Mrp diminishes because mp diminishes: due to fixed inputs. A worker adds 50 pens to total output: pens sell for each. The worker adds to tr: tr = 2 x 50. W = mrpl = p x mpl: mcl the wage of one worker. Competitive market: firm sells bottles at sh. 50. Firm hires 6 workers: w = = mrpl. The fir(cid:373) (cid:449)o(cid:374)"t (cid:1011) (cid:449)orkers: 7th worker adds to tr but costs . The marginal revenue product curve: dl = mrpl = p x mpl.

Related Questions

1. Which of the following is characteristic of the marginal revenue product schedule for a resource?

a. It approximates the firm's demand curve for the resource.

b. It measures the change in total revenue resulting from employing an additional unit of the resource.

c. It is determined by multiplying the marginal product of the resource by the marginal revenue of the good produced.

d. All of these are true.

2. Assume Ajax Company employs 100 workers and the total revenue is $400,000 per week. When Ajax Company employs 101 workers, the total revenue is $405,000. The marginal revenue product of the 101st worker is:

a. $40,000.

b. $5,000.

c. $405,000.

d. none of these.

3. The optimal number of workers to be hired by a firm operating in a competitive labour market is where:

a. P = MRP.

b. MP = MRP.

c. MRP = w.

d. P = w.

cerisecoyote480

Assume that the firm only uses labor as a resource in production and is hiring workers in a purely competitive labor market. In other words, the firm can hire as many workers as it wishes without affecting the equilibrium wage rate.

Units of Labor (L)	Total Product (Q)	Product Price (P)	Total Revenue (TR)	Marginal Revenue Product (MRP)
0	0	$2.20	$0	---
1	15	$2.00	$30	$30
2	28	$1.80
3	39	$1.60
4	48	$1.40
5	55	$1.20
6	60	$1.10

a. Is the firm selling its product in a purely competitive market or an imperfectly competitive market?

b. Fill out both the TR and MRP columns with the correct values.

c. Suppose the wage rate is $11.00 per worker. How many workers should be employed, in order to maximize profits?

d. If the firm hires the optimum number of workers, what is its total profit?

lilacmammoth398

The Zippy Paper Company has no control over either the price of paper or the wage it pays its workers. The following table shows the relationship between the number of workers Zippy hires and total output:

Assuming the selling price is $10 per box, answer the following questions:

a. What is the marginal revenue product (MRP) of each worker?

b. How many workers will Zippy hire if the wage rate is $100 per day?

c. How many workers will Zippy hire if the wage rate is $75 per day?

d. Assume the wage rate is $75 per day and the price of a box of paper is $20. How many workers will Zippy hire?

You should start by duplicating the chart on your sheet. You will then need to find the marginal product. Multiplying the marginal product by the price will give you the marginal revenue product.

Labor Input (workers per day)	Total Output (boxes of paper per day)	Marginal Product	Price	MP x P = MRP Marginal Revenue Product
0	0

1	15

2	27

3	36

4	43

5	48

tanhyena562

ECON 1B03 Lecture Notes - Lecture 12: Aerial Work Platform, Marginal Revenue, Economic Equilibrium

ECON 1B03 Full Course Notes

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