Chuckie's Pizza Palace produces gourmet pizzas that sell for $20 each. Assume that labor is the only input that varies for the firm. If Chuckie hires 10 workers, he can produce and sell 600 pizzas per week. If he hires 11 workers, he can produce and sell 650 pizzas per week. Chuckie pays each of his workers $400 per week. Which of the following is correct?

Question

Quizplus · Accepted Answer

The marginal revenue product (MRP) is the additional revenue generated from employing an additional unit of labor. To calculate MRP, we can find the change in total revenue and divide it by the change in labor input.

The change in total revenue from hiring the 11th worker is:

650 pizzas * $20/pizza = $13,000

The change in labor input is 1 worker, and each worker costs $400 per week, so the change in labor cost is $400.

Therefore, the MRP of the 11th worker is:

($13,000 - $12,000) / 1 = $1,000

This means that Chuckie's Pizza Palace is earning an additional $1,000 in revenue by hiring the 11th worker.

A is incorrect because marginal profit is the change in total profit from hiring an additional unit of labor, and we do not have information on total costs to calculate this.

C is incorrect because we do not know if Chuckie's Pizza Palace is maximizing its profit. We would need information on the costs of labor, ingredients, and other inputs to determine if the firm is maximizing profit.

D is incorrect because we have calculated that the MRP of the 11th worker is $1,000, which means that hiring the 11th worker is adding to the firm's profit.

Chuckie's Pizza Palace Produces Gourmet Pizzas That Sell for $20