Question

Number of Output Marginal Product Office Rent Labor Cost TotalCost

Workers boxes of Labor (dollars) (dollars)
0 0 --
1 220 400 200
2 250 800
3 680
4 160 1,200
5 940 1,000
6 980 1,600
Suzette's Fancy Packaging subcontracts with Sunshineland Pecans to box dried fruit and nuts for Suzette's mail order business. Suzette rents space for her factory for $400 a week in a nearby strip mall. She can hire temporary workers for $200 a week. Table 11-5 above shows her output and cost data. Use the table to answer questions a-e.
a. Complete the table.
b. In the last week of summer Suzette closes her business to go on a family vacation. What are her costs during that week?
c. In one week Suzette exactly breaks even. If her revenue for the week is $1,200, how many boxes of fruit and nuts did she produce?
d. Judging from the marginal product of labor data, would you say that Suzette had to settle for increasingly unproductive workers? Explain your answer.
e. Suzette has received an order for 1,500 boxes of nuts per week for the next 3 months. If she expects the trend in the marginal product of labor will continue in the same direction, what do you think she should do? Should she not commit until she can move to a larger space or should she just hire more workers? Explain your answer.

Answer 1

a.

Number of Output Marginal Product Office Rent Labor Cost Total Cost

Workers boxes of Labor (dollars) (dollars) (dollars)

0 0 - -

1 220 220 400 200 600

2 470 250 400 400 800

3 680 210 400 600 1,000

4 840 160 400 800 1,200

5 940 100 400 1,000 1,400

6 980 40 400 1,200 1,600

b. The costs during the week of summer vacation are: $400

c. She produced 840 boxes.

d. Yes. Suzette settled for increasingly unproductive workers as the marginal product of labor continued to decline. The cost of paying the workers remained at a flat rate of $200 per week without the corresponding output to show for the labor cost.

e. Suzette will need to hire more workers. However, their average productivity needs to be improved greatly to limit the total labor costs.

Step-by-step explanation:

a) Data and Calculations:

Number of Output Marginal Product Office Rent Labor Cost Total Cost

Workers boxes of Labor (dollars) (dollars) (dollars)

0 0 - -

1 220 220 400 200 600

2 470 250 400 400 800

3 680 210 400 600 1,000

4 840 160 400 800 1,200

5 940 100 400 1,000 1,400

6 980 40 400 1,200 1,600