Felicia Álvarez, a bakery manager, faces the total product curve shown, which gives the relationship between the number of bakers she hires each day and the number of loaves of bread she produces, assuming all other factors of production are given.
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0
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0
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1
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400
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2
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700
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3
|
900
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4
|
1,025
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5
|
1,100
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6
|
1,150
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Assume that bakers in the area receive a wage of $100 per day and that the price of bread is $1.00 per loaf.
1. Plot the bakery's marginal revenue product curve (remember that marginal values are plotted at the mid-points of the respective intervals).
2. Plot the bakery's marginal factor cost curve on the same graph.
3. How many bakers will Ms. Álvarez employ per day?
4. Suppose that the price of bread falls to $.80 per loaf. How will this affect the marginal revenue product curve for bakers at the firm? Plot the new curve.
5. How will the change in (d) above affect the number of bakers Ms. Álvarez hires?
6. Suppose the price of bread rises to $1.20 per loaf. How will this affect the marginal revenue product curve for bakers? Plot the new curve.
7. How will the development in (f) above affect the number of bakers that Ms. Álvarez employs?