ECO100Y1 Lecture : Value of Marginal Product (VMP).docx
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Below is a table showing the production numbers for a chair factory (where the production numbers are based on chairs being produced per day).
Workers |
Total Product (TP) |
Average Product (AP) |
Marginal Product (MP) |
Marginal Revenue Product (MRP) |
0 |
0 |
- |
- |
- |
1 |
10 |
|
|
|
2 |
|
15 |
|
|
3 |
|
|
40 |
|
4 |
|
35 |
|
|
5 |
190 |
|
|
|
6 |
|
|
30 |
|
7 |
240 |
|
|
|
8 |
250 |
|
|
|
9 |
|
|
5 |
|
a) Fill in the missing numbers for the TP, AP, and MP columns (round to the nearest chair)
b) In one sentence explain what the AP of 4 workers being 35 tells us.
c) In one sentence explain what your answer for MP of the 4th worker tells us.
d) Given the fact that each chair produced in our factory can be sold at the market price of $10 per chair, fill in the MRP column (round to the nearest dollar).
e) In one sentence explain what your answer for MRP for the 4th worker tells us.
f) If the market wage for workers doing manufacturing work (such as chair production) is $180 per day, determine the amount of workers this firm should hire to maximize its profit.
Explain your answer using MRP.