Asked by Katherine Marshall on May 02, 2024
Verified
Answer the question on the basis of the following information for Manfred's Shoe Shine Parlor.Assume Manfred hires labor,its only variable input,under purely competitive conditions.Shoe shines are also sold competitively. Units ofLabor‾01234567TotalProduct‾01430353944MarginalProduct‾14102TotalRevenue‾$4290117126132\begin{array}{c}\begin{array}{c} \text {Units of}\\\underline{\text {Labor}}\\0\\1\\2\\3\\4\\5\\6\\7\end{array}\begin{array}{c}\text {Total}\\\underline{\text {Product}}\\0\\14\\\\30\\35\\39\\\\44\end{array}\begin{array}{c}\text {Marginal}\\\underline{\text {Product}}\\\\14\\10\\\\\\\\\\2\end{array}\begin{array}{c}\text {Total}\\\underline{\text {Revenue}}\\\\\$ 42 \\\\90\\\\117\\126\\132\end{array}\end{array}Units ofLabor01234567TotalProduct01430353944MarginalProduct14102TotalRevenue$4290117126132
Refer to the given data.If the wage rate is $11 and Manfred's only fixed input is capital,the total cost of which is $30,then what will be his economic profit?
A) $62.
B) $42.
C) $28.
D) $32.
Economic Profit
The difference between total revenue and total costs, including both explicit and implicit costs.
Wage Rate
It refers to the amount of compensation an employee receives in exchange for their labor per unit of time, often expressed per hour, day, or piece worked.
Total Cost
The sum of all expenses incurred by a business in the production of goods or services, including both fixed and variable costs.
- Assess the marginal product and deduce the marginal resource cost with the available data.
- Understand how changes in the price of inputs affect a firm’s hiring decisions and employment levels.
Verified Answer
KA
Kelsie AdamsMay 08, 2024
Final Answer :
D
Explanation :
To find the economic profit, we need to first calculate the total variable cost (TVC), which is given by:
TVC = Wage rate x Units of labor
Using the given data, we can fill in the TVC column as follows:
Units ofLabor‾01234567TotalProduct‾01430353944MarginalProduct‾14102TotalRevenue‾$4290117126132TotalVariable Cost‾$011223344556677\begin{array}{c}\begin{array}{c} \text {Units of}\\\underline{\text {Labor}}\\0\\1\\2\\3\\4\\5\\6\\7\end{array}\begin{array}{c}\text {Total}\\\underline{\text {Product}}\\0\\14\\\\30\\35\\39\\\\44\end{array}\begin{array}{c}\text {Marginal}\\\underline{\text {Product}}\\\\14\\10\\\\\\\\\\2\end{array}\begin{array}{c}\text {Total}\\\underline{\text {Revenue}}\\\\\$ 42 \\\\90\\\\117\\126\\132\end{array}\begin{array}{c}\text {Total}\\\underline{\text {Variable Cost}}\\\\\$ 0 \\11\\22\\33\\44\\55\\66\\77\end{array}\end{array}Units ofLabor01234567TotalProduct01430353944MarginalProduct14102TotalRevenue$4290117126132TotalVariable Cost$011223344556677
Next, we can calculate the total cost (TC) as the sum of fixed cost and variable cost:
TC = $30 + TVC
Units ofLabor‾01234567TotalProduct‾01430353944MarginalProduct‾14102TotalRevenue‾$4290117126132TotalVariable Cost‾$011223344556677TotalCost‾$30415263748596107\begin{array}{c}\begin{array}{c} \text {Units of}\\\underline{\text {Labor}}\\0\\1\\2\\3\\4\\5\\6\\7\end{array}\begin{array}{c}\text {Total}\\\underline{\text {Product}}\\0\\14\\\\30\\35\\39\\\\44\end{array}\begin{array}{c}\text {Marginal}\\\underline{\text {Product}}\\\\14\\10\\\\\\\\\\2\end{array}\begin{array}{c}\text {Total}\\\underline{\text {Revenue}}\\\\\$ 42 \\\\90\\\\117\\126\\132\end{array}\begin{array}{c}\text {Total}\\\underline{\text {Variable Cost}}\\\\\$ 0 \\11\\22\\33\\44\\55\\66\\77\end{array}\begin{array}{c}\text {Total}\\\underline{\text {Cost}}\\\$ 30 \\41\\52\\63\\74\\85\\96\\107\end{array}\end{array}Units ofLabor01234567TotalProduct01430353944MarginalProduct14102TotalRevenue$4290117126132TotalVariable Cost$011223344556677TotalCost$30415263748596107
Finally, we can calculate the economic profit as the difference between total revenue and total cost:
Economic Profit = Total Revenue - Total Cost
\begin{align*}Economic Profit &= \$132 - \$107 \\&= \$25\end{align*}
Therefore, the economic profit is $25, which is option D.
TVC = Wage rate x Units of labor
Using the given data, we can fill in the TVC column as follows:
Units ofLabor‾01234567TotalProduct‾01430353944MarginalProduct‾14102TotalRevenue‾$4290117126132TotalVariable Cost‾$011223344556677\begin{array}{c}\begin{array}{c} \text {Units of}\\\underline{\text {Labor}}\\0\\1\\2\\3\\4\\5\\6\\7\end{array}\begin{array}{c}\text {Total}\\\underline{\text {Product}}\\0\\14\\\\30\\35\\39\\\\44\end{array}\begin{array}{c}\text {Marginal}\\\underline{\text {Product}}\\\\14\\10\\\\\\\\\\2\end{array}\begin{array}{c}\text {Total}\\\underline{\text {Revenue}}\\\\\$ 42 \\\\90\\\\117\\126\\132\end{array}\begin{array}{c}\text {Total}\\\underline{\text {Variable Cost}}\\\\\$ 0 \\11\\22\\33\\44\\55\\66\\77\end{array}\end{array}Units ofLabor01234567TotalProduct01430353944MarginalProduct14102TotalRevenue$4290117126132TotalVariable Cost$011223344556677
Next, we can calculate the total cost (TC) as the sum of fixed cost and variable cost:
TC = $30 + TVC
Units ofLabor‾01234567TotalProduct‾01430353944MarginalProduct‾14102TotalRevenue‾$4290117126132TotalVariable Cost‾$011223344556677TotalCost‾$30415263748596107\begin{array}{c}\begin{array}{c} \text {Units of}\\\underline{\text {Labor}}\\0\\1\\2\\3\\4\\5\\6\\7\end{array}\begin{array}{c}\text {Total}\\\underline{\text {Product}}\\0\\14\\\\30\\35\\39\\\\44\end{array}\begin{array}{c}\text {Marginal}\\\underline{\text {Product}}\\\\14\\10\\\\\\\\\\2\end{array}\begin{array}{c}\text {Total}\\\underline{\text {Revenue}}\\\\\$ 42 \\\\90\\\\117\\126\\132\end{array}\begin{array}{c}\text {Total}\\\underline{\text {Variable Cost}}\\\\\$ 0 \\11\\22\\33\\44\\55\\66\\77\end{array}\begin{array}{c}\text {Total}\\\underline{\text {Cost}}\\\$ 30 \\41\\52\\63\\74\\85\\96\\107\end{array}\end{array}Units ofLabor01234567TotalProduct01430353944MarginalProduct14102TotalRevenue$4290117126132TotalVariable Cost$011223344556677TotalCost$30415263748596107
Finally, we can calculate the economic profit as the difference between total revenue and total cost:
Economic Profit = Total Revenue - Total Cost
\begin{align*}Economic Profit &= \$132 - \$107 \\&= \$25\end{align*}
Therefore, the economic profit is $25, which is option D.
Learning Objectives
- Assess the marginal product and deduce the marginal resource cost with the available data.
- Understand how changes in the price of inputs affect a firm’s hiring decisions and employment levels.
Related questions
If Technology Dictates That Labor and Capital Must Be Used ...
Employers Will Hire More Units of a Resource If The ...
Answer the Question on the Basis of the Following Information ...
(Table: Workers and Output)Use Table: Workers and Output ...
(Table: Workers and Output)Use Table: Workers and Output ...