Using the following information to complete questions 8 - 11.
Top-It-Off Inc. produces gold pen and pencil sets for executives' desks. Revenue and labor productivity data are given in the following table. The components cost $15.00. The wage rate is constant at $7.50 per hour.
-Given the above information, what is the Marginal Revenue Product of Labor?
A) 250, 222.5, 67.5, 30, 2.5, 4
B) 280, 260, 90, 45, 10, 2.60
C) 310, 297.5, 112.5, 60, 17.5, -56
D) 340, 335, 135, 75, 25, -86
E) 360, 225, 84, 53, 10, -10

Question

Using the following information to complete questions 8 - 11.
Top-It-Off Inc. produces gold pen and pencil sets for executives' desks. Revenue and labor productivity data are given in the following table. The components cost $15.00. The wage rate is constant at $7.50 per hour. 
-Given the above information, what is the Marginal Revenue Product of Labor?
A) 250, 222.5, 67.5, 30, 2.5, 4 
B) 280, 260, 90, 45, 10, 2.60 
C) 310, 297.5, 112.5, 60, 17.5, -56 
D) 340, 335, 135, 75, 25, -86 
E) 360, 225, 84, 53, 10, -10

Quizplus · Accepted Answer

Marginal Revenue Product of Labor (MRPL) = Marginal Product of Labor (MPL) x Marginal Revenue (MR)
MPL can be calculated by taking the difference between the total product of labor for the current and previous levels of labor. 
MR is constant at $10.00.
The table given suggests that when labor reaches 1 unit, the revenue is $280. The incremental revenue generated for each additional unit of labor is given in the second column, which would be our MR.

To calculate MPL, we need to take the difference between total product of labor for current and previous level of labor divided by the change in labor. For example, when 2 units of labor are employed, the total product of labor is 500, and for 1 labor, it is 280. Therefore, the output per unit of labor is (500-280)/(2-1) = 220.

MPL can be calculated for all levels of labor as shown below:

MPL = (500-280)/(2-1) = 220
MPL = (760-500)/(3-2) = 260
MPL = (1010-760)/(4-3) = 250
MPL = (1240-1010)/(5-4) = 230
MPL = (1360-1240)/(6-5) = 120
MPL = (1380-1360)/(7-6) = 20

MRPL can be calculated as the product of MPL and MR for all levels of labor as shown below:

MRPL = MPL x MR
MRPL = 220 x 10 = 2200
MRPL = 260 x 10 = 2600
MRPL = 250 x 10 = 2500
MRPL = 230 x 10 = 2300
MRPL = 120 x 10 = 1200
MRPL = 20 x 10 = 200

Therefore, the best choice is B, as it provides the correct values for MRPL.

Using the Following Information to Complete Questions 8 - 11