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 third worker?
A)$400
B)$800
C)$1,000
D)$1,600

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 third worker?
A)$400 
B)$800 
C)$1,000 
D)$1,600

Quizplus · Accepted Answer

To find the marginal product of the third worker, we need to look at the difference in total output between two levels of employment (in this case, between two and three workers). The total output with two workers is 25 dance lessons per day, while the total output with three workers is 30 dance lessons per day. Therefore, the marginal product of the third worker is 30 - 25 = 5 dance lessons. The value of these 5 additional dance lessons is 5 x $20 = $100. However, we need to subtract the cost of hiring the third worker, which is $80. Therefore, the value of the marginal product of the third worker is $100 - $80 = $20. Since this is a profit-maximizing firm, it will hire the third worker if the value of his or her marginal product is greater than or equal to the wage rate of $80. Since the value of the marginal product is $20, which is less than the wage rate of $80, the firm will NOT hire the third worker.

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