Refer to Table 17-5. Oil Can Harry's, a new automobile service shop, is ready to start hiring. The table above shows the relationship between the number of mechanics the firm hires and the quantity of oil changes it produces
a. Suppose the price of an oil change is $20. Complete the table by filling in the values for marginal product and marginal revenue product.
b. Oil Can Harry's is an input price-taker. Suppose the wage paid to mechanics is $80 per day. What is the profit-maximizing number of mechanics?
c. Suppose the wage rate rises to $100 per day.
(i) What happens to the firm's demand curve for mechanics?
(ii) What happens to the profit-maximizing quantity of mechanics?
d. Suppose the wage rate is $60 per day and the price of an oil change is now $15.
(i) What happens to the firm's demand curve for mechanics?
(ii) What happens to the profit-maximizing quantity of mechanics?
a.
Number of Mechanics Oil Changes per Day Marginal Product Marginal Revenue Product
1 6 6 $120
2 12 6 120
3 17 5 100
4 21 4 80
5 24 3 60
6 26 2 40
b. The profit-maximizing number of mechanics is 4, where the marginal revenue product equals the wage rate.
c. (i) The demand curve does not change.
(ii) The profit-maximizing quantity of mechanics falls to 3.
d. (i) The demand curve shifts to the right.
(ii) The profit-maximizing quantity of mechanics increases to 4.
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