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Satsume Satsume
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5 years ago
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?
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Microeconomics

Microeconomics


Edition: 8th
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#1
5 years ago
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%
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