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Title: Currently, Trisha's Fashion Boutique uses 2 sewing machines in the production of dresses (K ... Post by: Satsume on Oct 25, 2017 Currently, Trisha's Fashion Boutique uses 2 sewing machines in the production of dresses (K represents the number of sewing machines). Trisha's marginal product of labor function is
MPL (L, K) = - 0.01L. Trisha can sell all the dresses she produces for $150 per unit and hire all the labor units she desires at $25 per unit. What happens to Trisha's optimal labor employment if she increases the number of sewing machines to 4? Title: Re: Currently, Trisha's Fashion Boutique uses 2 sewing machines in the production of dresses (K ... Post by: LBCea on Oct 25, 2017 Trisha's marginal revenue of the product of labor is:
MRPL(L,K) = MPL(L, K) MR = (0.5K - 0.01L)150 = 75K - 1.5L. With 2 sewing machines, the optimal employment of labor is: MRPL = 75K - 1.5L = 150 - 1.5L = 25. Therefore we have L = 83.33. If the number of sewing machines increases to 4, the optimal employment of labor is: MRPL = 75K - 1.5L = 300 - 1.5L = 25. Therefore we obtain L = 183.33. Thus, increasing the number of sewing machines from 2 to 4 increases the optimal employment of labor by 120% |