A firm has the following relationship between the number of

A firm has the following relationship between the number of employees it has (E) and its daily output:

Employees (E)

output

APE   

MPL

VMPE

0

0

1

50

2

60

3

68

4

74

5

78

6

80

In the table above, calculate and enter the average products of labor (APE).

In the table above, calculate and enter the marginal products of labor (MPE).

Assume that the firms output is sold at a price of $20 a unit. Calculate and enter the value of marginal product of labor (VMPE).

Say that the wage rate is $ 100/day. How many workers will this firm hire, as a profit maximizer?

If the wage rate rises to $150/day, how many workers will this firm hire?

Employees (E)	output	APE	MPL	VMPE
0	0
1	50
2	60
3	68
4	74
5	78
6	80

Solution

APE = Output / E

MPL = Difference in output

VMPE = MPL × Price ($20)

The required table is as below:

E

Output

APE

MPL

VMPE

0

0

0

0

0

1

50

50

50

$1,000

2

60

30

10

$200

3

68

22.67

8

$160

4

74

18.5

6

$120

5

78

15.6

4

$80

6

80

13.33

2

$40

Wage rate is $100 / day:

Number of workers = Wage rate / Price = $100 / $20 = 5

Wage rate is $150 / day:

Number of workers = Wage rate / Price = $150 / $20 = 7.5

E	Output	APE	MPL	VMPE
0	0	0	0	0
1	50	50	50	$1,000
2	60	30	10	$200
3	68	22.67	8	$160
4	74	18.5	6	$120
5	78	15.6	4	$80
6	80	13.33	2	$40