Sullivan's Custom Cabinets operate in a perfectly competitive market and employs labor and capital. Labor costs $30 a day. Machines cost $36 a day. Currently, Sullivan's has six machines and the marginal revenue product of capital is $30. Output sells at $5 per unit. Sullivan's hires you as a consultant and provides you with the following production function.
|
Workers (days)
|
Total Output
|
|
1
|
9
|
|
2
|
17
|
|
3
|
24
|
|
4
|
30
|
|
5
|
35
|
|
6
|
39
|
|
7
|
42
|
- Explain, in your own words, the meaning of MRP.
- How is MRP computed?
- Using the data presented, in the short run, how many workers would you recommend Sullivan's hire per day to maximize profits?
- Explain how you arrived at this number.