The manager of All-City Realtors wants to hire some real estate agents to specialize in selling housing units acquired by the Resolution Trust Corporation (RTC) in its attempt to bail out the savings and loan industry. The commission paid by the RTC to the company to sell these homes is a flat rate of $2,000 per unit sold, rather than the customary commission that is based on the sale price of a home. The manager estimates the following marginal product schedule for real estate agents dealing in Government-owned housing:
Number of Agents
Marginal Product (# of Additional Units Sold per Year)
Marginal Revenue Product
1
20
2
17
3
15
4
12
5
8
6
4
a. Construct the marginal revenue product schedule by filling in the blanks in the table.
b. If the manager of All-City Realtors must pay a wage rate of $32,000 per year to get agents who will specialize in selling RTC housing, how many agents should the manager hire? Why?
c. If the wage rate falls to $18,000 per year, how many agents should the manager hire?
d. Suppose RTC raises its commission to $3000 per unit sold. Now, what is the marginal revenue product for each real estate agent employed?
e. Now that the RTC is paying $3000 per unit sold, how many agents should the manager hire if the new wage rate is $30,000?
The manager of All-City Realtors wants to hire some real estate agents to specialize in selling housing units acquired by the Resolution Trust Corporation (RTC) in its attempt to bail out the savings and loan industry. The commission paid by the RTC to the company to sell these homes is a flat rate of $2,000 per unit sold, rather than the customary commission that is based on the sale price of a home. The manager estimates the following marginal product schedule for real estate agents dealing in Government-owned housing:
Number of Agents | Marginal Product (# of Additional Units Sold per Year) | Marginal Revenue Product |
1 | 20 | |
2 | 17 | |
3 | 15 | |
4 | 12 | |
5 | 8 | |
6 | 4 |
a. Construct the marginal revenue product schedule by filling in the blanks in the table.
b. If the manager of All-City Realtors must pay a wage rate of $32,000 per year to get agents who will specialize in selling RTC housing, how many agents should the manager hire? Why?
c. If the wage rate falls to $18,000 per year, how many agents should the manager hire?
d. Suppose RTC raises its commission to $3000 per unit sold. Now, what is the marginal revenue product for each real estate agent employed?
e. Now that the RTC is paying $3000 per unit sold, how many agents should the manager hire if the new wage rate is $30,000?
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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 |
|||
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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?