Diminishing marginal product of labor

Reference no: EM13121351

Just Bikes, Inc., sells tricycles, in partially-assembled and fully assembled forms. Parents who assemble their own tricycles benefit from the lower price of $40 per tricycle. "Full-service" customers enjoy the luxury of an assembled tricycle, but pay a higher price of $60 per tricycle. Both partially and fully assembled tricycle prices are stable. The company has observed the following relation between the number of assembly workers employed per day and assembled tricycle output:

Number of Workers per day	Finished Tricycles
0	0
1	8
2	14
3	18
4	21
5	23

a. Construct a table showing the (net) marginal revenue product derived from assembly worker employment.

b. How many assemblers would Just Bikes employ at a daily wage rate of $100? Explain your answer and show all calculations.

c. What is the highest daily wage rate Just Bikes would pay to hire three assemblers per day?

2. Describe the difference between a diminishing marginal product of labor and a negative marginal product of labor. Why would a profit-maximizing firm always choose to operate where the marginal product of labor is decreasing (but not negative)?

Reference no: EM13121351

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