Managerial Economics Homework #2

Note there is sufficient information provided to fully answer the questions. Please show your work if you use a spreadsheet, you need to use excel and submit it to Canvas, also. Consider the Labor Economics Question. This will provide insight into the idea of the optimal number of workers and the value of the marginal product of labor. If wages in the restaurant is $18 per hour and the price of

a Hamburger is $4.33 and the production function for the workers is: Q = 30.67L 0.25L2 a. How many workers should Your Restaurant employ during the lunch hour to maximize profits? 1 Point (Notethe value of the marginal product of labor and the marginal revenue product are the same) We maximize profits which are total revenues less total costs:

b. Compute the maximum profit at Your Restaurant. (Noteconsider that profit involves Total Revenue and Total Costs). 1 Point

c. Compute the profit created if You hire an additional worker. Explain why it is or is not profit maximizing to hire an additional worker. 1 Point

d. Suppose instead that You wants to keep the lines as short as possible by maximizing production. How many workers should You employ during the lunch hour? Point

e. The Value of the Marginal Product of Labor Equation is an important equation. Setting aside political considerations, there has been quite a bit of discussion regarding the pay level for fast food restaurants. In two paragraphs, please discuss the challenge of paying these workers more. Point

Solution

a.

Wages=$18

Price=$4.33

Profit=Revenue-Cost

Q= 30.67L 0.25L²

4.33*(30.67L-0.25L²)-18L

132.80L-1.082L²-18L

114.8L-1.083L²

Profit maximum when (L)=0

114.8L-1.083L²=0

...............employees are required for profit maximization.