Labor to Maximize Profits
Sullivan’s Custom Cabinets operate in a perfectly competitive market and employs labor and capital. Labor costs $30 a day. Machines cost $36 a day. Currently, Sullivan’s has six machines and the marginal revenue product of capital is $30. Output sells at $5 per unit. Sullivan’s hires you as a consultant and provides you with the following production function.
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|
Workers (days) |
Total Output |
|
1 |
9 |
|
2 |
17 |
|
3 |
24 |
|
4 |
30 |
|
5 |
35 |
|
6 |
39 |
|
7 |
42 |
- Explain, in your own words, the meaning of MRP.
- How is MRP computed?
- Using the data presented, in the short run, how many workers would you recommend Sullivan’s hire per day to maximize profits?
- Explain how you arrived at this number.
