High Tech, Inc. produces plastic chairs that sell for $10 each. The following table provides information about how many plastic chairs can be produced per hour. $$\begin{array} { | c | c | }
\hline \text { Number of Workers } & \text { Chairs Produced Per Hour } \
\hline 0 & 0 \
\hline 1 & 10 \
\hline 2 & 18 \
\hline 3 & 24 \
\hline 4 & 28 \
\hline 5 & 30 \
\hline
\end{array}$$ For simplicity, assume that labor is the only input. How many workers will be hired if the hourly wage for workers is $30?

Question

High Tech, Inc. produces plastic chairs that sell for $10 each. The following table provides information about how many plastic chairs can be produced per hour. $$\begin{array} { | c | c | } 
\hline \text { Number of Workers } & \text { Chairs Produced Per Hour } \
\hline 0 & 0 \
\hline 1 & 10 \
\hline 2 & 18 \
\hline 3 & 24 \
\hline 4 & 28 \
\hline 5 & 30 \
\hline
\end{array}$$ For simplicity, assume that labor is the only input. How many workers will be hired if the hourly wage for workers is $30?

Quizplus · Accepted Answer

We need to calculate the marginal productivity of labor (MPL) and hire workers up to the point where the MPL equals the hourly wage.

$$\begin{array} { | c | c | c | } 
\hline \text { Number of Workers } & \text { Chairs Produced Per Hour } & \text { MPL } \
\hline 0 & 0 & - \
\hline 1 & 10 & 10 \
\hline 2 & 18 & 8 \
\hline 3 & 24 & 6 \
\hline 4 & 28 & 4 \
\hline 5 & 30 & 2 \
\hline
\end{array}$$

The MPL decreases as we add more workers, which is consistent with the law of diminishing marginal returns.

The hourly wage is $30. We hire workers up to the point where the MPL equals $30.

From the table, when there are 4 workers, the MPL is 4, which is less than $30. When there are 3 workers, the MPL is 6, which is greater than $30. Therefore, the optimal number of workers to hire is 4.

High Tech, Inc For Simplicity, Assume That Labor Is the Only Input