A Firm Currently Employs 40 Production Workers and 5 Supervisors

Essay

A firm currently employs 40 production workers and 5 supervisors. The marginal product of the last production worker employed is 36 units of output per hour and production workers are paid $8 per hour. The marginal product of the last supervisor employed is 120 units of output per hour and supervisors are paid $20 per hour. Every employee works 40 hours per week.
(i) What is the firm's total labor cost per week?
(ii) Assume that hours of labor by supervisors (Ls) is plotted on the vertical axis and hours of labor by production workers (Lp) is plotted on the horizontal axis. What is the equation for the firm's isocost line? What are the two intercepts of the isocost line?
(iii) Assume that the firm's isoquants are smooth curves and that labor hours can be varied continuously. Is the firm producing the maximum level of output given its current level of cost? If it is, explain how you can tell. If it isn't, explain what it should do to increase output.