Consider a small landscaping company run by Mr. Viemeister. He is considering in
ID: 1200679 • Letter: C
Question
Consider a small landscaping company run by Mr. Viemeister. He is considering increasing his firm’s capacity. If he adds one more worker, the firm’s total monthly revenue will increase from $52,000 to $60,000. If he adds one more tractor, monthly revenue will increase from $52,000 to $64,000. Each additional worker costs $4,000 per month, while an additional tractor would also cost $4,000 per month.
Instructions: Enter your answers as whole numbers.
a. What is the marginal revenue product of labor? $.
The marginal revenue product of capital? $.
b. What is the ratio of the marginal revenue product of labor to the price of labor (MRPL/PL)? .
What is the ratio of the marginal product of capital to the price of capital (MRPK/PK)? .
c. Is the firm using the least-costly combination of inputs? (Click to select)YesNo.
d. Does adding an additional worker or adding an additional tractor yield a larger increase in total revenue for each dollar spent? (Click to select)Adding an additional tractorAdding an additional worker.
Explanation / Answer
= 60000-52000=8000.
=64000-52000=12000.
b. MRPL/PL = 8000/4000=2
MRPK/PK = 12000/4000=3.
c. It's not using least-costly combination of inputs.
d. By adding additional tractor, firm can earn more revenue per dollar spent. This is evident from the ratio MRPK/PK which is 3. i.e. 1 dollar increase in capital increases the revenue by $3. whereas it is $2 in case of labor.