Fill in the Table Below and Figure out How Many Workers I Should Hire to Maximize Profits

this simple example is useful for understanding the importance of whether wages are flexible or not

Fill in the table below and figure out how many workers I should hire to maximize profits. The current (given) nominal wage (W) = $80 and the given price of the output (P) = $10.

TABLE 1

N Y MPN MRPN Marginal Profit Total Profit 0 0 - - - 0

1 10 10 $100 20 20

2 25 15 $150 70 90

3 36 11 $110 30 120

4 45 9 $90 10 130

5 52 7 $70 -10 120

6 55 3 $30 -50 70 real profits = 130/10 = 13 real wages = 80/10 = 8 output = 45 Let's change prices to 12.5 - a 25% increase

0 0 MPN MRPN Marginal Profit Total Profit

1 10 10 $125 45 45

2 25 15 107.5 152.5 $187.5 3 36 11 $137.5 57.5 210

4 45 9 $112.5 32.5 242.5

5 52 7 $87.5 7.5 250

6 55 3 $37.5 -42.5 207.5 real profits = 250/12.5 = 20 real wages = 80/12.5 = 6.4 output = 52

Let's change wages to $100 - a 25% increase

0 0 MPN MRPN Marginal Profit Total Profit

1 10 10 $125 25 25

2 25 15 87.5 112.5 $187.5 3 36 11 $137.5 37.5 150

4 45 9 $112.5 12.5 162.5

5 52 7 $87.5 -12.5 150

6 55 3 $37.5 -62.5 87.5 real profits = 162.5/12.5 = 13 real wages = 100/12.5 = 8 output = 45