26. The table below shows the short-run production
function for Michelle's Accounting Company.
a.
Number of Bookkeepers
1
2
3
4
5
6
7
8
Total Product per Hour
8
20
40
55
65
70
65
55
After which bookkeeper do diminishing marginal returns begin for Michelle's Accounting Company?
Explain using numbers.
b. Assume Michelle's Accounting Company sells its accounting services in a perfectly competitive market
at a price of $20. Calculate the marginal revenue product of the sixth bookkeeper. Show your work.
c. Michelle's Accounting Company hires bookkeepers in a perfectly competitive labor market for
bookkeepers at a wage rate of $110 per hour, and the market price of services remains $20. How many
bookkeepers will Michelle's Accounting Company hire to maximize its profit? Explain using marginal
analysis.
d. Assume bookkeepers and accounting software are substitutes in providing accounting services by all
accounting firms in the market. If accounting software, a fixed input, becomes less expensive and
Michelle's Accounting Company provides the same quantity of accounting services, will each of the
following increase, decrease, or stay the same?
i. The wage rate Michelle's Accounting Company will pay its bookkeepers. Explain.
ii. The demand curve for bookkeepers for Michelle's Accounting Company. Explain.