LEARNING ACTIVITY 2 UNIT 3
Exercise 1
Table 1 represents the catch of Red Snapper fish in pounds in Cabo Rojo Puerto Rico by Keith
Young Fishing Company
Table 1
Number
Of
Workers
Dedicated
To
catching
fish
0
1
2
3
4
5
6
7
8
9
Daily red
Snapper
Catch
In
pounds
0
50
110
300
450
590
665
700
725
710
Instructions
1. Assume that capital (fishing nets, boats, equipment etc.) is fixed
2. Extent this table with following columns:
a. Marginal product of labor of the fishermen
b. Average product of labor of the fishermen
c. The marginal revenue product of fishermen
Questions:
1. Calculate the marginal product of labor for fishermen
2. Calculate the average product of labor for fishermen
3. Up to how many fishermen do we have increasing returns?
4. Indicate the range of fishermen that will produce decreasing returns?
Suppose that the market price for a pound of Red Snapper is $3.50 and the daily wage rate of
fishermen is $100.
5. How many fishermen should be hired if the objective of the firm is to maximize profits?
Suppose a shortage of Red Snapper increases the price per pound to $5.00
6. Explain what impact this would have on the hiring of fishermen.
Exercise 2
Keith Young & Sons LLC has the following short run production function: Q = 50L +6L2 â 0.5L3
Where Q = quantity of output per week
L = Labor (number of workers)
The marginal product function of labor equals: MPL = 50 + 12L â 1.5L2
Instructions:
1. Set up a table with the following columns
a. Labor
b. Total output
c. Marginal Product of Labor
d. Average product of labor
Questions
1. Find the average product function of labor
2. When does the law of diminishing returns take effect
3. At what level of output and with how many workers is average product of labor
maximized
Assume that each worker is paid $10 per hour and works a 40- hour week.
4. How many workers should the firm hire if the price of output is $10?
Exercise 3
Determine whether the following production functions exhibit constant, increasing or decreasing
returns to scale.
1.
Q = 10 L0.5K0.3
2.
Q = 4A + 6B + 8AB