3 Aristoteles fruit juice stand sells smoothies in a competi

3. Aristoteles fruit juice stand sells smoothies in a competitive market. The price of a smoothie is $8.00 each. Daily output varies with the amount of labor hired as follows: # Workers Total Product (smoothies/day) Total Revenue Marginal Product of Labor Marginal Revenue Product 0 0 1 9 2 17 3 23 4 27 5 29 Fill in the columns for total revenue, marginal product of labor and marginal revenue product. If the wage for a worker is $30 per day, how many workers should Johnny’s sandwich shop employ? What if the wages double? Explain your answers.

Solution

Workers TP TR MP MR 0 0 0 0 0 1 9 72 9 72 2 17 136 8 64 3 23 184 6 48 4 27 216 4 32 5 29 232 2 16 When Wage rate is $ 30 per worker (i.e. MC= 30) Then the firm must hire upto 4 workers. Till the point MR is higher than MC. When wage rate doubles i.e. MC = 60 Then the firm must hire hire upto 2 workers. This is the point where MR is higher than MC