What do i sell each unit of output for 2 what do i

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Unformatted text preview: nto dollars. To understand this concept, ask yourself whether you would hire the fourth worker if you owned a business. To really be able to answer this question, you would first have to ask yourself two questions: 07 (154-185) EMC Chap 07 12/5/05 2:19 PM Page 181 1. What do I sell each unit of output for? 2. What do I have to pay to hire the fourth worker? Suppose you sell each unit of output for $30 and you will have to pay the fourth worker a wage of $70. Would you hire the fourth worker? One way to figure out the answer is to calculate how much “comes in” the door with the fourth worker compared to how much “goes out” the door with the fourth worker. The worker produces 5 more units of output, and you can sell each unit for $30, so the worker really “comes in” the door with $150. You have to pay the fourth worker $70, so the worker “goes out” the door with this amount. Would you be willing to pay someone $70 to get $150 in return? Sure you would, so you should hire the fourth worker. What is the general rule now for hiring employees? As long as the additional output produced by the additional worker multiplied by the price of the good is greater than the wage you have to pay the worker, then hire the worker. If the additional output produced by the additional worker multiplied by the price of the good is less than the wage you have to pay the worker, then don’t hire the worker. If Bob hires Marianne, output will rise by 7 units a day. Bob can sell each unit of output for $50. To hire Marianne, Bob will have to pay her $200 a day. Should Bob hire Marianne? Sure he should. Output increases by 7 units a day and Bob sells each unit for $50, so Marianne brings $350 a day to Bob. Bob has to pay Marianne only $200 a day. Who wouldn’t spend $200 to get $350? EXAMPLE: As more workers are added (column 1), the quantity of output produced each day rises (column 2). It isn’t until the fourth worker that diminishing marginal returns are said to set in. Hundreds of job seekers apply for positions prior to the opening of a new hotel. What economic principle might the hotel managers use in deciding how many of the applicants they will hire? Section 3 Revenue and Its Applications 181 07 (154-185) EMC Chap 07 11/17/05 5:15 PM How Much Time Should You Study? ?????????????????? A Suppose Exhibit 7-7 the marginal benefits equal the THINK marginal costs. ABOUT IT represents your marginal benefits and marginal costs Suppose the marginal (addiof studying. In other words, the tional) benefits of studying start right amount of time for you to out high and decrease with time, study is two hours. Then one day, as illustrated in Exhibit 7-7 with a your economics teacher talks downward-sloping marginal benefit about the benefits of learning curve (for studying). This curve says economics. Afterward, you realize that you benefit more from the first that there are more benefits to minute of studying than the second learning economics than you had minute, more from the second thought. Will this change...
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