Activity 44 marginal revenue product How many workers should be hired?

The interconnectedness of the two markets As firms, in the products market, we thought on the margin in terms of the additional revenue from an additional unit of output: TR/1 As firms, in the factor market, we’ll again think on the margin but in terms of the additional revenue from an additional unit of input: TR/1

Acme Yo-Yo Company produces supersonic yo-yos in a competitive products market. It can produce as many as it wants, charging $2 each. In the competitive labor market, it can hire as many workers as it wants, paying each $30 a day. How many workers should Acme hire? Number of workers hired (inputs) Level of output (number of yo- yos produced per day (Quantity) Marginal physical product (MPP) Product price (Marginal Revenue) Total Revenue (P x Q) Marginal Revenue Product (MPP x MR) 00--$2.00$ $2.00$40 = 2 x 20$40 250$ $ $ $ $2.00

Acme Yo-Yo Company produces supersonic yo-yos in a competitive products market. It can produce as many as it wants, charging $2 each. In the competitive labor market, it can hire as many workers as it wants, paying each $30 a day. How many workers should Acme hire? Number of workers hired (inputs) Level of output (number of yo- yos produced per day (Quantity) Marginal physical product (MPP) Product price (Marginal Revenue) Total Revenue (P x Q) Marginal Revenue Product (MPP x MR) 00--$2.00$ $2.00$40 = 2 x 20$ $ $ $ $ $

Acme Yo-Yo Company produces supersonic yo-yos in a competitive products market. It can produce as many as it wants, charging $2 each. In the competitive labor market, it can hire as many workers as it wants, paying each $30 a day. How many workers should Acme hire? Number of workers hired (inputs) Level of output (number of yo- yos produced per day (Quantity) Marginal physical product (MPP) Product price (Marginal Revenue) Total Revenue (P x Q) Marginal Revenue Product (MPP x MR) 00--$2.00$ $2.00$40 = 2 x 20$ $ $ $ $ $

If the demand for Acme’s yo-yos increases, so that Acme can sell as many yo-yos as it wants for $3 each; –What effect will this have on Acme’s level of employment? Number of workers hired (inputs) Level of output (Quantity) Marginal physical product (MPP) Product price (MR) Total Revenue (P x Q) Marginal Revenue Product (MPPxMR) 00--$2.00$ $2.00$40 = 2 x 20 $ $ $ $ $ $

If the demand for Acme’s yo-yos increases, so that Acme can sell as many yo-yos as it wants for $3 each; –What effect will this have on Acme’s level of employment? Number of workers hired (inputs) Level of output (Quantity) Marginal physical product (MPP) Product price (MR) Total Revenue (P x Q) Marginal Revenue Product (MPPxMR) 00--$3.00$ $3.00$60 = 3 x 20 $ $ $ $ $ $

A firm should hire another worker as long as the marginal revenue product is not exceeded by her or his wage If the demand for Acme’s yo-yos increases, so that Acme can sell as many yo-yos as it wants for $3 each; –What effect will this have on Acme’s level of employment? Number of workers hired (inputs) Level of output (Quantity) Marginal physical product (MPP) Product price (MR) Total Revenue (P x Q) Marginal Revenue Product (MPPxMR) 00--$3.00$ $3.00$60 = 3 x 20 $ $ $ $ $ $