It has been many years since I have taken economics, however, I think
I may have the answer to your question. First, look at these numbers:
Labor Qnty Price Revenue Cost Marginal Marginal Return on Product
Produced of cost of
Labor Labor
5 300 10 3000 325
9 400 9 3600 585 260 600
15 500 8 4000 975 390 400
22 600 7 4200 1430 455 200
30 700 6 4200 1950 520 200
As you can see, with 5 workers, we can produce 300 units at a price of
10 bucks each. This will produce a revenue of 3000 dollars. The
total cost of labor at this point is 325 dollars.
If we increase our number of workers to 9, we will produce 400 units
at a price of 9 dollars each and produce revenues of 3600. The total
cost of labor is 585 (9 * 65); and the marginal cost of labor is 260
(585-325). The MRP, or marginal revenue product, is 600 (simply 3600
- 3000). Since the cost of workers (W) is less than the MRP, this is
a good deal. Simply stated, we are it is costing us an additional 260
dollars in wages to make an additional 600 dollars.
With fifteen workers, it costs us an additional 390 dollars in wages
to bring in 400 dollars. W is still less than MRP. So this is a
pretty good deal.
At 22 workers, it is now costing us an additional 455 dollars in wages
to make an additional 200 dollars. This is NOT a very good scenario
because we are paying more than we are able to recoup.
As such, the firm's profit-maximizing employment level is 15. The
profit-maximizing price of output is 8 dollars. The profit-maximizing
daily output level is 4000 units.
The basic idea is that the firm should continue increasing the number
of workers until the added cost is equal to the MRP.
I hope this is helpful and correct. Maybe another member can comment
on the accuracy of my reasoning.
-d |
