Table 18-6
Consider the following daily production data for MadeFromScratch, Inc. MadeFromScratch sells cupcakes for $3 each and pays the workers a wage of $325 per day.

$$\begin{array} { | c | c | c | c | c | c | }
\hline \begin{array} { c }
\text { Labor } \
\text { (Number of } \
\text { workers) }
\end{array} & \begin{array} { c }
\text { Output } \
\text { (Cupcakes per } \
\text { day) }
\end{array} & \begin{array} { c }
\text { Marginal } \
\text { Product } \
\text { of Labor } \
\text { (Cupcakes per } \
\text { day) }
\end{array} & \begin{array} { c }
\text { Value of the } \
\text { Marginal } \
\text { Product of Labor } \
\text { (Cupcakes) }
\end{array} & \begin{array} { c }
\text { Wage } \
\text { (Dollarsper } \
\text { worker per } \
\text { day) }
\end{array} & \begin{array} { c }
\text { Margin } \
\text { Profit } \
\text { (Dollar }
\end{array} \
\hline 0 & 0 & & & 325 & \
\hline 1 & 200 & & & 325 & \
\hline 2 & 350 & & & 325 & \
\hline 3 & 475 & & & 325 & \
\hline 4 & 575 & & &325 & \
\hline
\end{array}$$
-Refer to Table 18-6. Assume that MadeFromScratch is a competitive, profit-maximizing firm. If the market price of cupcakes increases from $2.00 to $2.50, how many workers would the firm then hire?
A)Two workers
B)Three workers
C)Four workers
D)Five workers

Question

Table 18-6
Consider the following daily production data for MadeFromScratch, Inc. MadeFromScratch sells cupcakes for $3 each and pays the workers a wage of $325 per day.
​
​
 $$\begin{array} { | c | c | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Labor } \
\text { (Number of } \
\text { workers) }
\end{array} & \begin{array} { c } 
\text { Output } \
\text { (Cupcakes per } \
\text { day) }
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Product } \
\text { of Labor } \
\text { (Cupcakes per } \
\text { day) }
\end{array} & \begin{array} { c } 
\text { Value of the } \
\text { Marginal } \
\text { Product of Labor } \
\text { (Cupcakes) }
\end{array} & \begin{array} { c } 
\text { Wage } \
\text { (Dollarsper } \
\text { worker per } \
\text { day) }
\end{array} & \begin{array} { c } 
\text { Margin } \
\text { Profit } \
\text { (Dollar }
\end{array} \
\hline 0 & 0 & & & 325 & \
\hline 1 & 200 & & & 325 & \
\hline 2 & 350 & & & 325 & \
\hline 3 & 475 & & & 325 & \
\hline 4 & 575 & & &325 & \
\hline
\end{array}$$ ​
-Refer to Table 18-6. Assume that MadeFromScratch is a competitive, profit-maximizing firm. If the market price of cupcakes increases from $2.00 to $2.50, how many workers would the firm then hire?
A)Two workers
B)Three workers
C)Four workers
D)Five workers

Quizplus · Accepted Answer

To determine the number of workers the firm would hire, we need to calculate the Marginal Product of Labor (MPL) and the Value of the Marginal Product of Labor (VMPL) at the new price of $2.50 per cupcake. The MPL is the increase in output from adding one more worker. The VMPL is calculated as MPL multiplied by the price of the product.1. For the first worker, MPL = 200 cupcakes. VMPL = 200 * $2.50 = $500.2. For the second worker, MPL = 350 - 200 = 150 cupcakes. VMPL = 150 * $2.50 = $375.3. For the third worker, MPL = 475 - 350 = 125 cupcakes. VMPL = 125 * $2.50 = $312.50.4. For the fourth worker, MPL = 575 - 475 = 100 cupcakes. VMPL = 100 * $2.50 = $250.Since the wage is $325 per day, the firm will hire workers as long as the VMPL is greater than or equal to the wage. Based on the calculations, the firm would hire three workers because the VMPL for the third worker ($312.50) is still greater than the wage ($325), but the VMPL for the fourth worker ($250) is less than the wage.

Table 18-6 Consider the Following Daily Production Data for MadeFromScratch

Table 18-6
Consider the Following Daily Production Data for MadeFromScratch