Reference no: EM131242554
Trans-Fat Corp. is setting up a small Twonky factory in Albany. Table 1 shows the hourly output in Twonkies associated with each level of employment.
Workers 0 1 2 3 4 5 6 7 8 9 10 11 12
Output 0 5 11 18 26 35 43 50 56 61 65 68 70
a. Define marginal product of labor. Explain why diminishing marginal productivity in an input occurs.
b. Tabulate and plot the marginal product and average product of labor curves for the factory. In this problem, diminishing marginal returns begins with which employee? c. If a Twonky retails for $2 each. How many workers would the firm hire if the wage was $12?
d. Plot out the short run labor demand curve for the factory for wages between $4 and $20.
e. What is the elasticity of short-run labor demand for wages close to $12.?
f. Suppose the price of Twonkies increases to $3. How many do they hire if the wage is $12 now?
g. Suppose instead that the firm is considering expanding the factory so that output at every level of employment is twice as high. How many workers would they hire at $12? (price of Twonkies is $2.)