Use the table below to answer the following questions.
Table 17.2.3

-Emperor Spring Rolls produces spring rolls.The market for spring rolls is perfectly competitive,and the price of a spring roll is $3.50.The labour market is competitive,and the wage rate is $28 a day.Table 17.2.3 shows the workers' total product schedule.To maximize its profit,Emperor produces ________ spring rolls a day.

Question

Use the table below to answer the following questions.
Table 17.2.3
 
-Emperor Spring Rolls produces spring rolls.The market for spring rolls is perfectly competitive,and the price of a spring roll is $3.50.The labour market is competitive,and the wage rate is $28 a day.Table 17.2.3 shows the workers' total product schedule.To maximize its profit,Emperor produces ________ spring rolls a day.

Quizplus · Accepted Answer

To maximize profit, Emperor Spring Rolls should produce where marginal cost (MC) equals marginal revenue (MR). In a perfectly competitive market, the firm's marginal revenue equals the market price of the product, which is $3.50 in this case. To find the firm's marginal cost, we need to look at the table of total product and calculate the marginal product (MP) of each worker, which is the additional output that is produced when one more worker is hired. The marginal cost is then calculated as the wage rate divided by the marginal product. The table shows that the marginal product of the 6th worker is 12 spring rolls, which is the highest marginal product. Therefore, the firm should hire 6 workers and produce 6 x 12 = 72 spring rolls. However, this would result in a marginal cost of $2.33, which is lower than the market price. Therefore, the firm should hire one less worker and produce 6 x 11 = 66 spring rolls, which has a marginal cost of $2.55, which is equal to the market price. However, this would only result in normal profit, which is the minimum level of profit required to keep the firm in the market in the long run. To maximize profit, the firm should produce where marginal cost equals marginal revenue, which occurs when the firm hires 62 workers and produces 62 x 11 = 682 spring rolls, which has a marginal cost of $3.50, equal to the market price. Therefore, the answer is D) 62.

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