2)The manager of All City realtors
wants to hire some real estate
agents to specialize in selling
housing units acquired by the
Resolution Trust Commission
(RTC) in its attempt to bail out the
savings and loan industry. The
commission paid by RTC to the
company to sell these homes is
$2,000 per unit sold, rather that
the customary commission that is
based on the sale price of a home.
The manager estimates the following
marginal product schedule for real
estate agents dealing in government-
owned housing:
# agents MP MRP
1 20 ____
2 17 ____
3 15 ____
4 12 ____
5 8 ____
6 4 ____
a)Construct the marginal revenue
product schedule by filling in the
blanks in thetable.
ANSWER:
MRP = P (price product sold at) x MP = 2,000x MP
# agents MP MRP@ 2,000
1 20 $40,000
2 17 $34,000
3 15 $30,000
4 12 $24,000
5 8 $16,000
6 4 $8,000
b)If the manager of All City Realtors
must pay a wage rate of $32,000 per
year to get agents who will
specialize in selling RTC housing,
how many agents should the manager
hire? Why?
ANSWER:
MRP = W (wage)
MRP = P x MP
MRP = 2000 x 16 = $32,000
Manager should hire 3 or 3.5
workers, as the MRP at 16 MP
would be $32,000
c) If the rate falls to $18,000 per
year, how many agents should the
manager hire?
ANSWER:
MRP = P x MP
MRP = 2000 x 9 = $18,000
Manager should hire 5 workers.
d)Suppose RTC raises its commission to
$3,000 per unit sold. Now what is
the marginal revenue product for
each real estate agent employed?
ANSWER:
MRP = P (price product sold at) x MP
MRP = 3,000 x MP
# agents MP MRP
1 20 $60,000
2 17 $51,000
3 15 $45,000
4 12 $36,000
5 8 $24,000
6 4 $12,000
e)Now that the RTC is paying $3,000
per unit sold, how many agents
should the manager hire if the wage
rate is $30,000?
ANSWER:
MRP = w
MRP = P x MP
MRP = 3,000 x 10 = 30,000
Manager should hire 4 agents.
Do these calculations seem right? I can't figure out why everything seems to fall between the numbers listed in MP?
Thanks,
EY
Yes, the calculations provided in the answer key seem to be correct.
In order to understand why the numbers in the MP (marginal product) column fall between the listed numbers, it is important to understand how the marginal product is calculated.
Marginal product (MP) measures the additional output produced by adding one more unit of input (in this case, one more real estate agent). In this scenario, the MP represents the number of housing units sold per additional agent.
For example, when there is 1 agent, the MP is 20 units sold. When a second agent is added, the MP decreases to 17 units sold. This means that the additional agent contributes to selling fewer units than the initial agent.
The reason the MP values fall between the numbers listed is due to the law of diminishing marginal returns. As more agents are hired, the additional units sold by each new agent decrease. This is a common phenomenon in production where as more resources (in this case, agents) are added, the marginal output of each additional resource starts to decrease.
Therefore, the numbers in the MP column will generally fall between the listed numbers, reflecting the diminishing returns as more agents are hired.