(Daddy Warbucks employs workers in his perfectly competitive factory. Mr. Smith employs workers in his monopolistic factory as the only producer of the thing you really want. Given the following information, determine how many workers each firm will employ: The weekly salary is $206 and the price of each product initially is $15.00.)
Workers Total Product Marginal Revenue
0 0 ---
1 100 $14.00
2 225 $13.00
3 325 $12.00
4 400 $10.00
5 450 $9.00
6 475 $8.00
7 485 $7.00
8 490 $6.00
1. Why does Marginal Revenue Product initially rise, and then fall?
2. Why does a monopolist firm hire fewer workers than a competitive firm?
3.Daddy Warbucks will employ _____ workers. Mr Smith will employ ________ workers.
I need a little assistance, I think I have the correct answers but I need to make sure. Thanks in advanced..
Take a shot, what do you think?
Repost and i or others will look at your answers.
Hint: I think Warbucks hires 6, Smith hires 5.
Yes those are the answers I got too! I just wanted to see if I was right..
Thanks
MEEE TOOOOO!!!
1. The Marginal Revenue Product (MRP) initially rises and then falls due to the principle of diminishing marginal returns.
Initially, when only one worker is employed, the total product increases with each additional worker, which leads to an increase in revenue for the monopolistic firm. This rise in MRP occurs because the first worker is highly productive and can generate a large quantity of products.
However, as more workers are hired, the total product continues to increase, but at a diminishing rate. This means that each additional worker contributes less to the total product compared to the previous worker. Consequently, the marginal revenue generated by each additional worker decreases, which leads to a decline in MRP.
2. A monopolistic firm hires fewer workers than a competitive firm because it has market power and faces a downward-sloping demand curve for its product.
In a competitive market, each firm takes the market price as given and maximizes its profits by equating the marginal cost of labor to the wage rate. Therefore, the competitive firm hires workers until the marginal cost of labor is equal to the wage rate.
However, a monopolistic firm can set its own price since it is the only producer of the desired product. It faces a downward-sloping demand curve, meaning it must decrease the price to sell more products. As a result, the marginal revenue for each additional unit sold will be less than the price. When a monopolistic firm hires additional workers, the cost of labor increases, cutting into its profits. Given this higher cost, the monopolistic firm will hire fewer workers compared to a perfectly competitive firm.
3. Based on the given information, we can determine the number of workers that Daddy Warbucks and Mr. Smith will employ.
To find the optimal number of workers for each firm, we need to compare the Marginal Revenue Product (MRP) with the wage rate. The MRP is the additional revenue generated by each additional worker. If the MRP is greater than or equal to the wage rate, it is profitable to hire more workers.
From the given information:
- For Daddy Warbucks:
- MRP of the 1st worker = $14.00 (which is equal to the price of each product)
- MRP of the 2nd worker = $13.00
- MRP of the 3rd worker = $12.00
- ...
- MRP of the 8th worker = $6.00
Since the wage rate is $206, Daddy Warbucks will hire workers until the MRP is greater than or equal to $206. By examining the MRP values, Daddy Warbucks will hire 5 workers because the MRP of the 5th worker ($9.00) is greater than the wage rate.
- For Mr. Smith:
- MRP of the 1st worker = $14.00
- MRP of the 2nd worker = $13.00
- MRP of the 3rd worker = $12.00
- ...
- MRP of the 8th worker = $6.00
Since Mr. Smith is a monopolistic firm, he has control over the price of the product. From the given information, it is not explicitly stated at what point Mr. Smith will stop hiring workers. We can assume that Mr. Smith will hire workers until the MRP is equal to or less than $206, the wage rate. By examining the MRP values, it is apparent that Mr. Smith will hire all 8 workers as the MRP of the 8th worker ($6.00) is less than the wage rate.
Therefore, Daddy Warbucks will employ 5 workers, and Mr. Smith will employ 8 workers.