Question

The Custom Van Corporation currently employs 200 workers. At that level of employment, the average product of labor is 10 Custom Vans per worker per week. If the marginal product of labor in the factory is 8 Custom Vans per worker per week, then hiring an additional worker will:

Answer 1

A reduction in average product by 0.01

Step-by-step explanation:

Current number of workers = 200

Average product of labor = 10 Custom Vans per worker per week

Average product is given as : TP/N

Where TP is the total product and is Unknown, N is the number of workers and it is equal to 200.

Therefore TP = 200*10 = 2000

Marginal product (MP) of labour = 8 custom vans per worker per week.

Hiring additional worker will increase total product (TP) by 8.

New average product = (2000+8)/(200+1) = 2008/201

New AP = 9.99

So hiring an additional product will reduce average product by 0.01