Consider a small landscaping company run by Mr Viemelster He

Consider a small landscaping company run by Mr. Viemelster. He is considering Increasing his firm\'s capacity. If he adds one more worker, the firm\'s total monthly revenue will Increase from $54,000 to $72,000. If he adds one more tractor, monthly revenue will increase from $54,000 to $66,000. Each additional worker costs $6,000 per month, while an additional tractor would also cost $6,000 per month. Instructions: Enter your answers as whole numbers a. What is the marginal revenue product of labor? The marginal revenue product of capital? b. What is the ratio of the marginal revenue product of labor to the price of labor (MRPL/PL)? K Prey 20 of 20

Solution

(a)

Marginal revenue product of labor (MRPL) = $(72,000 - 54,000) = $18,000

Marginal revenue product of capital (MRPK) = $(66,000 - 54,000) = $12,000

(b)

MRPL/PL = $18,000/$6,000 = 3

MRPK/PK = $12,000/$6,000 = 2

(c) NO

Least-cost input combination occurs when (MRPL/PL) = (MRPK/PK), which does not hold true in this case.

(d) An additional tractor

Since (MRPL/PL) > (MRPK/PK), cost will be minimized if firm uses less number of workers and more number of tractors.