Another interesting application of MARGINAL ANALYSIS is the calculation of how many workers to hire. As you might guess we compare the marginal revenue to the marginal cost to get the answer.
Here's an example for you to work on:
(TCO C) You have been hired to manage a small manufacturing facility which has cost and production data given in the table below.
No. of workers--------Total Labor Cost------Output-------Total Revenue
---------1----------------------$100----------------10--------------$300
---------2----------------------$200----------------30--------------$500
---------3----------------------$300----------------60--------------$600
---------4----------------------$400----------------80--------------$690
---------5----------------------$500----------------90--------------$770
---------6----------------------$600----------------95--------------$820
---------7----------------------$700----------------97--------------$850
a. What is the marginal product of the third worker?
b. What is the marginal revenue product of the sixth worker?
c. What is the marginal cost of the fourth worker?
d. Based on your knowledge of marginal analysis, how many workers should you hire? Explain you answer.