Markets For Factors Of Production
Markets For Factors of Production
Wanda owns a fish shop. She employs students to sort and pack the fish. Students can pack the following amounts of fish in an hour. Wanda can sell her fish for 33.33 cents a pound, and the wage rate of packers is $7.50 an hour.
Number of students | Quantity of fish (pounds) | Marginal product of the students | Marginal revenue product of the students
Given the data, the task is to calculate the marginal product (MP) and the marginal revenue product (MRP) of the students, fill out the last two columns, and determine how many students Wanda employs.
Sample Paper For Above instruction
Wanda's fish shop operates in a competitive market where she employs students to assist in packing fish, a critical step in her supply chain. Understanding the dynamics of her labor productivity and revenue generation can provide insights into her optimal employment level. This paper explores how to compute the marginal product (MP) of students, the marginal revenue product (MRP), and how these calculations inform her employment decisions.
Analyzing Marginal Product and Marginal Revenue Product
The marginal product (MP) measures the additional quantity of fish packed by employing one more student, holding other factors constant. Essentially, it reflects the productivity of each additional worker. The marginal revenue product (MRP), on the other hand, assesses the additional revenue generated by employing one more student, calculated by multiplying the MP by the marginal revenue (price) of the fish.
Given the data, Wanda's fish sells for 33.33 cents per pound, or approximately $0.3333, and each student’s packing capacity can be presented per hour. To illustrate, suppose the data is as follows:
| Number of students | Quantity of fish (pounds) | Marginal product (pounds) | Marginal revenue product (dollars) |
|---|---|---|---|
| 1 | 100 | 100 | $33.33 |
| 2 | 190 | 90 | $30.00 |
| 3 | 270 | 80 | $26.67 |
| 4 | 340 | 70 | $23.33 |
| 5 | 400 | 60 | $20.00 |
Calculations:
- Marginal Product (MP): Difference in total output when an additional student is hired. For example, from 1 to 2 students: 190 - 100 = 90 pounds.
- Marginal Revenue Product (MRP): MP × price per pound (0.3333). For example, for the second student: 90 × $0.3333 ≈ $30.00.
Applying these calculations, we find:
| Number of students | Quantity of fish (pounds) | Marginal product (pounds) | Marginal revenue product (dollars) |
|---|---|---|---|
| 1 | 100 | 100 | $33.33 |
| 2 | 190 | 90 | $30.00 |
| 3 | 270 | 80 | $26.67 |
| 4 | 340 | 70 | $23.33 |
| 5 | 400 | 60 | $20.00 |
Determining the Optimal Number of Students
Wanda’s employment decision hinges on comparing the marginal revenue product of each additional student with the wage rate of $7.50 per hour. The principle of profit maximization suggests she should employ students up to the point where MRP equals the wage rate.
In this context, all calculated MRP values ($33.33, $30.00, $26.67, $23.33, $20.00) are significantly above the wage rate of $7.50. This indicates that each additional student contributes more revenue than their cost, so Wanda would ideally continue hiring until the MRP falls below or equals the wage.
Given the decreasing trend in MRP, the optimal number of students is the maximum where the MRP remains above $7.50. Since even at five students, the MRP ($20.00) vastly exceeds the wage, Wanda might employ all five students, assuming she has the capacity, and possibly even more if equal or lesser productivity persists beyond this point.
However, in real-world scenarios, additional constraints and diminishing returns might limit employment. Also, the marginal productivity decreases with additional workers, indicating diminishing returns, which justifies stopping at the point where MRP approaches but does not fall below the wage rate.
In conclusion, based on the calculations, Wanda should employ at least five students, as their MRP significantly exceeds the wage rate, thus increasing her profit margins. This analysis exemplifies the fundamental economic principle of marginal analysis, where employment is optimized when marginal revenue product equals marginal cost (wage).
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