Consider the following information for a hypothetical
Economy: If the price per bicycle is $20 and the wage
Per worker is $40, then what is the marginal product of
Labor?
A)20 bicycles
B)2 bicycles
C)0.5 bicycle
D)1 bicycle

Question

Quizplus · Accepted Answer

To calculate the marginal product of labor, we need to determine how much output (in this case, bicycles) is produced as a result of adding one more unit of labor (in this case, one more worker).

The formula for marginal product of labor (MPL) is: MPL = ΔQ/ΔL, where ΔQ is the change in output and ΔL is the change in labor.

Since we are assuming that each worker produces bicycles, the initial output with one worker would be 1 bicycle. If we add a second worker, how much output (in bicycles) will be produced?

If the price per bicycle is $20, then the revenue generated by producing an additional bicycle is $20. We can assume that the marginal cost of producing an additional bicycle is the wage per worker, which is $40.

If we add a second worker, the cost will be $40 (the wage for the second worker), and the revenue will be $20 (the additional revenue generated by producing one more bicycle). This means that adding a second worker is not profitable, and will actually result in a loss of $20.

Therefore, the marginal product of labor is equal to the change in output per worker, or ΔQ/ΔL = 0 bicycles/1 worker = 0.

However, it's important to note that the marginal product of labor can be positive, negative, or zero depending on the specific circumstances of the economy. In this case, the marginal product of labor is not useful for making production decisions because adding another worker would result in a loss.

Consider the Following Information for a Hypothetical