Table 18-8
Harold and Maude own a dance studio where they and their employees teach ballroom dancing. Their company is a competitive, profit-maximizing firm. Harold and Maude's production function is detailed in the table below.
-Refer to Table 18-8. If Harold and Maude pay their workers $80 per day and charge $20 per dance lesson, what is the value of the marginal product of the second worker?
A)$400
B)$800
C)$1,600
D)$4,800

Question

Table 18-8
Harold and Maude own a dance studio where they and their employees teach ballroom dancing. Their company is a competitive, profit-maximizing firm. Harold and Maude's production function is detailed in the table below. 
-Refer to Table 18-8. If Harold and Maude pay their workers $80 per day and charge $20 per dance lesson, what is the value of the marginal product of the second worker?
A)$400 
B)$800 
C)$1,600 
D)$4,800

Quizplus · Accepted Answer

The marginal product of labor can be calculated by taking the difference between the total product of labor for a specific number of workers and the total product of labor for one fewer worker. 
For the second worker: MP2 = TP2 - TP1 = 3,200 - 1,600 = 1,600. 
To find the value of the marginal product, we multiply the marginal product of the second worker by the price the firm charges per dance lesson: 
Value of MP2 = MP2 x Price = 1,600 x 20 = $32,000. 
However, the firm pays each worker $80 per day, which is equivalent to four dance lessons at $20 per lesson. Thus, the firm incurs a cost of $80 to produce an additional $80 of revenue. 
Therefore, the value of the marginal product of the second worker is $1,600.

Table 18-8 Harold and Maude Own a Dance Studio Where They and They