The wage rate a firm has to pay and the output it can produce varies with the
Question:
The wage rate a firm has to pay and the output it can produce varies with the number of workers as follows (all figures are hourly):
Number of workers | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
Wage rate (ACL) (£) | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
Total output (TPPL) | 10 | 22 | 32 | 40 | 46 | 50 | 52 | 52 |
Assume that output sells at £2 per unit.
(a) Copy the table and add additional rows for TCL, MCL, TRPL and MRPL. Put the figures for MCL and MRPL in the spaces between the columns.
(b) How many workers will the firm employ in order to maximise profits?
(c) What will be its hourly wage bill at this level of employment?
(d) How much hourly revenue will it earn at this level of employment?
(e) Assuming that the firm faces other (fixed) costs of £30 per hour, how much hourly profit will it make?
(f) Assume that the workers now formed a union and that the firm agreed to pay the negotiated wage rate to all employees. What is the maximum to which the hourly wage rate could rise without causing the firm to try to reduce employment below that in (b) above?
(g) What would be the firm’s hourly profit now?
Step by Step Answer:
a See the following table Number of workers 1 2 3 4 5 6 7 8 AC L 3 4 5 6 7 8 9 10 TC L 3 8 15 24 35 ...View the full answer
