Consider the Labor Economics Question. This will provide insight into the idea of the optimal number of workers and the value of the marginal product of labor. If wages in the restaurant is $20.00 per hour and the price of a Hamburger is $8.00 and the production function for the workers is: Q = 11L – 0.25L^2 a. How many workers should Your Restaurant employ during the lunch hour to maximize profits? 1 Point (note—the value of the marginal product of labor and the marginal revenue product are the same) We maximize profits which are total revenues less total costs: b. Compute the maximum profit at Your Restaurant. (note—consider that profit involves Total Revenue and Total Costs). 1 Point c. Compute the profit created if You hire an additional worker. Explain why it is or is not profit maximizing to hire an additional worker. The idea of this question is to recognize that we can find the profit maximizing quantity of labor– after that point, profit begins to diminish. 1 Point d. Suppose instead that You wants to keep the lines as short as possible by maximizing production, while still making a profit. How many workers should You employ during the lunch hour? The point of this question is to realize that sometimes you should produce at a breakeven point and maximize output– this is almost a customer building exercise (you don’t lose money but you impress the customers with great service). ½ Point e. The Value of the Marginal Product of Labor Equation is an important equation. Setting aside political considerations, there has been quite a bit of discussion regarding the pay level for fast food restaurants. In two paragraphs, please discuss the challenge of paying these workers more. ½ Point
Consider the
If wages in the restaurant is $20.00 per hour and the price of a Hamburger is $8.00 and the production function for the workers is:
Q = 11L – 0.25L^2
a. How many workers should Your Restaurant employ during the lunch hour to maximize profits? 1 Point
(note—the value of the marginal product of labor and the marginal revenue product are the same)
We maximize profits which are total revenues less total costs:
b. Compute the maximum profit at Your Restaurant. (note—consider that profit involves Total Revenue and Total Costs). 1 Point
c. Compute the profit created if You hire an additional worker. Explain why it is or is not profit maximizing to hire an additional worker.
The idea of this question is to recognize that we can find the profit maximizing quantity of labor– after that point, profit begins to diminish.
1 Point
d. Suppose instead that You wants to keep the lines as short as possible by maximizing production, while still making a profit. How many workers should You employ during the lunch hour?
The point of this question is to realize that sometimes you should produce at a breakeven point and maximize output– this is almost a customer building exercise (you don’t lose money but you impress the customers with great service). ½ Point
e. The Value of the Marginal Product of Labor Equation is an important equation. Setting aside political considerations, there has been quite a bit of discussion regarding the pay level for fast food restaurants. In two paragraphs, please discuss the challenge of paying these workers more. ½ Point
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