Patty’s Pizza has the production function per hour shown in the table below. The hourly wage rate for each worker is $10. Each pizza sells for $2.

a) Calculate the marginal product of labor (MPL) for each worker and the value of the marginal product of labor per worker (VMPL).

b) Draw the VMPL curve and use your diagram to state how many workers Patty should employ.

c) Suppose, the hourly wage rate rises to $15. State, how many workers she will hire now? Show in the same diagram as b).

d) Now the price of pizza increases to $4, wage rate is $10. Calculate the VMPL per worker, and draw the new VMPL curve in a new diagram. Use your diagram to determine how many workers Patty should employ now.

Now, let’s assume that Patty buys a new high-tech pizza oven that allows her workers to become twice as productive as before. That is, the first worker now produces 18 pizzas per hour instead of 9, and so on.
e) Calculate the new MPL and the new VMPL at the original price of $2 per pizza using the new information above.

f) Using answer e) determine how Patty’s hiring decision responds to this increase in the productivity of her workforce when the wage rate is $10, i.e., will she hire more workers or less workers than before or not change the number of workers? (use a diagram if needed).
 

Transcribed Image Text:

Quantity of workers Quantity of pizzas 1 2 15 3 19 4 22 5 24 Quantity of workers Quantity of pizzas 1 2 15 3 19 4 22 5 24

Answer rating: 100% (QA)

e Table showing the old and new MPL and VMPL is given below VMPL 2 MPL f Equilibrium condition for choosing the number of workers is VMPL w If VMPL ex... View the full answer