Cakes by Monica (a bakery under the umbrella of the Café Brulé restaurant) in Vermillion, SD makes cupcakes for customers to purchase both in the store and in bulk orders for birthday parties and weddings.
Suppose in the short-run, a bakery like Cakes by Monica has a fixed amount of capital but can hire college students from a local college easily to increase production as needed. A production schedule is provided for you where Q is dozens of cupcakes.
a) Using the schedule provided, calculate the marginal product of labor when K = 3.
b) Using your calculations, for which workers are there increasing, decreasing, and negative marginal returns to labor?
c) Suppose this bakery decides to add another unit of capital in the long-run. Find the marginal product of the 4th unit of capital and the marginal product of labor when K = 4.
d) Create a graph of the marginal product of labor for K=3 and K=4.
e) Using your graph and the data, how does the addition of another unit of capital affect the productivity of labor?
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