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eco365laborworksheet.doc
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Production
ECO 365
Labor Demand
Use the information below to answer the questions.
The table below represents a production schedule for Quincy’s Quiche Corner, a restaurant in a mall that
sells quiches, priced at $3 each (P = $3). Total Revenue (TR) equals price multiplied by the number of
quiches produced per hour.
Employees are primarily high school students with virtually identical skills as quiche makers, and they are
paid a wage rate of $8.00 per hour (W = $8). Labor costs equal the wage rate multiplied by the number of
workers employed per hour.
Quincy’s has total fixed cost (TFC) equal to $18 per hour.
Total cost (TC) is equal to labor costs plus TFC. Profit is equal to Total Revenue minus Total Cost
Assume Quincy’s operates in a perfectly competitive environment (in both input and output markets).
Fill in the missing values in the table.
Number of Workers Output (quiches per hour) Marginal Product
Value of Marginal Product
0
0
1
10
10
$30
2
18
_____
$24
3
24
6
_____
4
28
_____
$12
5
30
_____
_____
Does marginal product increase or decrease as additional workers are hired? ______________
If the firm follows the profit-maximizing rule, hiring additional workers as long as the value of marginal
product exceeds the wage rate, how many workers will the firm hire? __________
Calculate the firm’s hourly revenue, total cost, and profit, assuming it follows the profit-maximizing rule:
TR = ________
TC = ________
Profit = ________
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