Economics
5th Edition
ISBN: 9781319066604
Author: Paul Krugman, Robin Wells
Publisher: Worth Publishers
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Question
Chapter 19, Problem 12P
To determine
Concept Introduction
Marginal Product of Labor (MPL): This refers to the additional unit of output produced when an additional unit of labor is employed in the current labor force.
The formula to calculate the marginal product of labor is:
Where,
is the change in quantity. 
is the change in labor.
Value of Marginal Product of Labor (VMPL): This refers to the value of an additional unit of output produced when an additional unit of labor is employed in the current labor force.
The formula to calculate the value of marginal product of labor is:
Where,
- MPL is the marginal product of labor.
- P is the price.
Expert Solution & Answer
Explanation of Solution
a. Calculation of MPL and VMPL.
Given,
Price of pizza is $2.
Hourly wage rate is $10.
| Quantity of Labor(Workers) | Quantity of Pizza |
| 0 | 0 |
| 1 | 9 |
| 2 | 15 |
| 3 | 19 |
| 4 | 22 |
| 5 | 24 |
In order to maximize the profit, the pizza parlor should employ that number of workers at which the value of the marginal product of labor is more than or equal to the wage rate of $10.
The below table shows the calculation of MPL and VMPL:
| Quantity of Labor(Workers) | Change in Quantity of Labor(Workers)(A) | Quantity of Pizza | Change in Quantity of Pizza(B) | MPL(C) | VMPL($) |
| 0 | - | 0 | - | - | - |
| 1 | 1 | 9 | 9 | 9 | 18 |
| 2 | 1 | 15 | 6 | 6 | 12 |
| 3 | 1 | 19 | 4 | 4 | 8 |
| 4 | 1 | 22 | 3 | 3 | 6 |
| 5 | 1 | 24 | 2 | 2 | 4 |
Conclusion:
Thus, the MPL and VMPL per worker is calculated in the table.
b. Graph to show the value of marginal product of labor curve.
The below graph shows the VMPL curve:
Fig 1
- In the above graph, VMPL curve shows the value of marginal product of labor which is downward sloping.
- The VMPL is more than or equal to the wage rate of $10 at the level where the number of workers employed is 2.
- Hence, two workers should be employed. If the third worker is employed, the VMPL falls below the wage rate at $8.
Conclusion:
Thus, two workers should be employed.
c. The price of pizza increases to $4.
The below table shows the calculation of MPL and VMPL:
| Quantity of Labor(Workers) | Change in Quantity of Labor(Workers)(A) | Quantity of Pizza | Change in Quantity of Pizza(B) | MPL(C) | VMPL($) |
| 0 | - | 0 | - | - | - |
| 1 | 1 | 9 | 9 | 9 | 36 |
| 2 | 1 | 15 | 6 | 6 | 24 |
| 3 | 1 | 19 | 4 | 4 | 16 |
| 4 | 1 | 22 | 3 | 3 | 12 |
| 5 | 1 | 24 | 2 | 2 | 8 |
The below graph shows the VMPL curve:
Fig 2
- In the above graph, VMPL2curve shows the value of marginal product of labor which is downward sloping.
- The VMPL is more than or equal to the wage rate of $10 at the level where the number of workers employed is 4.
- Hence, 4 workers should be employed. If the fifth worker is employed, the VMPL falls below the wage rate at $8.
Conclusion:
Thus, four workers should be employed.
d. MPL and VMPL after the purchase of a new oven.
In order to maximize the profit, the pizza parlor should employ that number of workers at which the value of marginal product of labor is more than or equal to the wage rate of $10.
The below table shows the calculation of MPL and VMPL:
| Quantity of Labor(Workers) | Change in Quantity of Labor(Workers)(A) | Quantity of Pizza | Change in Quantity of Pizza(B) | MPL(C) | VMPL($) |
| 0 | - | 0 | - | - | - |
| 1 | 1 | 18 | 18 | 18 | 36 |
| 2 | 1 | 30 | 12 | 12 | 24 |
| 3 | 1 | 38 | 8 | 8 | 16 |
| 4 | 1 | 44 | 6 | 6 | 12 |
| 5 | 1 | 48 | 4 | 4 | 8 |
Conclusion:
Thus, the MPL and VMPL per worker is calculated in the table.
e. Graph to show the value of marginal product of labor curve.
The below graph shows the VMPL curve:
Fig 3
- In the above graph, VMPL3curve shows the value of marginal product of labor which is downward sloping.
- The VMPL is more than or equal to the wage rate of $10 at the level where the number of workers employed is 4.
- Hence, 4 workers should be employed. If the fifth worker is employed, the VMPL falls below the wage rate at $8.
- Therefore, Ms. Patty should employ more workers as the technology gets better.
Conclusion:
Thus, four workers should be employed.
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Students have asked these similar questions
Consider a firm facing conventional production technology. The short run Production
Function has a small range of increasing marginal product (increasing marginal returns) and
then is subject to the Law of Diminishing Marginal Product (diminishing marginal returns).
A. Putting quantity on the horizontal axis and dollars on the vertical axis, depict three
important curves: Fixed Cost (FC), Variable Cost (VC), and Total Cost (TC). (Note that we
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B. Please clearly indicate on this graph the range of quantities where the firm is experiencing
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Explain the concept of the opportunity cost of holding money .
Explain why an increase in U.S. interest rates relative to UK interest rates would affect the U.S.-UK exchange rate.
Suppose that a person’s wealth is $50,000 and that her yearlyincome is $60,000. Also suppose that her money demand functionis given by Md = $Y10.35 - i2Derive the demand for bonds. Suppose the interest rate increases by 10 percentage points. What is the effect on her demand for bonds?b. What are the effects of an increase in income on her demand for money and her demand for bonds? Explain in words
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Question 6 of 18
>
The graph shows the average total cost (ATC) curve, the
marginal cost (MC) curve, the average variable cost (AVC)
curve, and the marginal revenue (MR) curve (which is also
the market price) for a perfectly competitive firm that
produces terrible towels. Answer the three questions,
assuming that the firm is profit-maximizing and does not shut
down in the short run.
What is the firm's total revenue?
S
What is the firm's total cost?
$
What is the firm's profit? (Enter a negative number for a loss.)
$
Price
$320
$300
$200
$150
205 260
336
365
Quantity
MC
ATC
AVC
MR=P
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