The Lighthouse Safety Vest Co. makes flotation vests for recreational boaters. They currently employ 50 people and produce 12,000 vests per month. Lighthouse managers know that when they hire one more person, monthly vest production will increase by 200 vests. They pay workers $1,600 per month.
a. What is the marginal product of the 51st worker?
b. What is the marginal cost to produce one more vest? (Hint: Think of the marginal cost as the additional worker's pay divided by the changes in output.)
c. If labor is the only variable factor of production, will the average variable cost of production rise or fall as a result of hiring a 51st worker? Why?
d. What happens to the marginal cost of a vest when the 52nd worker is added and the marginal product drops to 160 vests per month?