Table 18-4
Consider the following daily production data for Wills Golf Balls.Wills sells golf balls for $2.50 cents each and pays the workers a wage of $325 per day.

-Refer to Table 18-4.Assuming Wills is a competitive,profit-maximizing firm,how many workers will the firm hire?

Question

Table 18-4
Consider the following daily production data for Wills Golf Balls.Wills sells golf balls for $2.50 cents each and pays the workers a wage of $325 per day.
 
-Refer to Table 18-4.Assuming Wills is a competitive,profit-maximizing firm,how many workers will the firm hire?

Quizplus · Accepted Answer

To determine how many workers Wills Golf Balls should hire, we need to find the level of output where the marginal cost of labor is equal to the marginal revenue generated from the additional unit of output. We can calculate the marginal cost of labor by dividing the wage ($325) by the additional output from one more worker. For example, the marginal cost of labor for going from 3 workers to 4 workers is ($325 / 30) = $10.83.

Using the data in Table 18-4, we can calculate the marginal revenue generated from an additional unit of output as follows:
Marginal revenue = change in total revenue / change in output
For example, going from an output of 70 to 80 golf balls increases total revenue from $175 to $200, so the marginal revenue of the 80th golf ball is ($200 - $175) / (80 - 70) = $2.50.

We can calculate the marginal cost of labor and marginal revenue for each level of output and compare them to find the profit-maximizing level of output. The results are shown in the table below:

| Workers | Output | Total Revenue | Marginal Revenue | Marginal Cost | Marginal Profit |
|---------|--------|---------------|-----------------|---------------|-----------------|
| 1       | 30     | $75           |      —           | $325          |      —           |
| 2       | 50     | $125          | $2.50           | $162.50       | -$0.83          |
| 3       | 70     | $175          | $2.50           | $108.33       | $1.67           |
| 4       | 100    | $250          | $2.50           | $81.25        | $1.67           |
| 5       | 125    | $312.50       | $2.50           | $65           | $0.83           |
| 6       | 140    | $350          | $2.50           | $54.17        | -$1.67          |

Based on the table, we can see that the profit-maximizing level of output is where marginal revenue equals marginal cost. This occurs at an output of 100 golf balls and with 4 workers. Therefore, the firm should hire 4 workers to maximize profits.

Table 18-4 Consider the Following Daily Production Data for Wills Golf Balls.Wills