Solutions Economics

ABC Corporation manufactures widgets. It can sell all of the widgets it produces for $10 each. Its p

Question: ABC Corporation manufactures widgets. It can sell all of the widgets it produces for $10 each. Its production process has one variable input, labor, which costs $1000 a week to hire. Complete the following table and answer the questions below.

Number of Workers per Week Total Widgets Produced MP of Labor Marginal Revenue Product Total Wages Marginal Resource Cost Marginal Profits
0 0 0 0 0 0 0
1 200 200 2000 1000 5 5
2 360 160 1600 2000 6.25 10
3 480 120 1200 3000 8.3333 -1.6667
4 560 80 800 4000 12.5 -25
5 600 40 400 5000 25 -95

a. What is the profit maximizing number of workers ABC Corporation should hire?

b. What is the relationship between Marginal Revenue Product and Marginal Resource Cost when profits are maximized?

c. If the price of widgets increases to $12.50 each, what happens to the number of workers the firm wants to hire and the amount it produces?

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