Consider a small landscaping company run by Mr. Viemeister. He is considering in
ID: 1217428 • 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 $50,000 to $62,000. If he adds one more tractor, monthly revenue will increase from $50,000 to $68,000. Each additional worker costs $6,000 per month, while an additional tractor would also cost $6,000 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) Yes No.
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 worker Adding an additional tractor.
Explanation / Answer
(a) marginal revenue product of labor = $12000 (i.e.62000 - 50000)
marginal revenue product of capital = $18000 (i.e.62000 - 50000)
(b) MRPL/PL = $12000 / $6000 = 2
MRPK/PK = $18000 / $6000 = 3
(c) No. Because MRPK/PK > MRPL/PL
(d) Ans: Adding an additional tractor
Explanation: Since MRPK/PK > MRPL/PL, Total revenue will increase more by adding an additional tractor