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The Lighthouse Safety Vest Co. makes flotation vests for recreational boaters. They currently employ 50 people and produce 12,000 vests per month. Lighthouse managers know that when they hire one more person, monthly vest production will increase by 200 vests. They pay workers $1,600 per month. a. What is the marginal product of the 51st worker? b. What is the marginal cost to produce one more vest? ( Hint: Think of the marginal cost as the additional worker's pay divided by the changes in output.) c. If labor is the only variable factor of production, will the average variable cost of production rise or fall as a result of hiring a 51st worker? Why? d. What happens to the marginal cost of a vest when the 52nd worker is added and the marginal product drops to 160 vests per month?

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Exploring Economics

8th Edition
Robert L. Sexton
Publisher: SAGE Publications, Inc
ISBN: 9781544336329

Solutions

Chapter
Section
BuyFindarrow_forward

Exploring Economics

8th Edition
Robert L. Sexton
Publisher: SAGE Publications, Inc
ISBN: 9781544336329
Chapter 11, Problem 15P
Textbook Problem
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The Lighthouse Safety Vest Co. makes flotation vests for recreational boaters. They currently employ 50 people and produce 12,000 vests per month. Lighthouse managers know that when they hire one more person, monthly vest production will increase by 200 vests. They pay workers $1,600 per month.

a. What is the marginal product of the 51st worker?

b. What is the marginal cost to produce one more vest? (Hint: Think of the marginal cost as the additional worker's pay divided by the changes in output.)

c. If labor is the only variable factor of production, will the average variable cost of production rise or fall as a result of hiring a 51st worker? Why?

d. What happens to the marginal cost of a vest when the 52nd worker is added and the marginal product drops to 160 vests per month?

To determine

(a)

To find:

The marginal product for the 51st worker.

Explanation of Solution

Marginal product of 51st worker is 200 vests...

To determine

(b)

To find:

The marginal cost to produce one more unit of output.

To determine

(c)

To explain:

The effect on average variable cost due to hiring of 51st worker and the reason for it.

To determine

(d)

To explain:

The effect on marginal cost of vest with the addition of the 52nd worker and the reduction of marginal product to 160 vests per month.

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