One seamstrses can sew 2 dresses per day and two seamstresses can sew 5 dresses per day.?

Question

One seamstrses can sew 2 dresses per day and two seamstresses can sew 5 dresses per day. If the marginal revenue product of hiring the second seamstress is $360, then in a competitive product market:

A. there are decreasing returns to scale
B. there are diminishing returns to labor
C. Each dress sells for $120
D. The seamstresses are earning zero economic profits in the short run
E. marginal cost of production is $120

Please help as I'm not sure what this means, thank you.

Answer 1

this is the dumbest, most incompetently jargonistic question ive ever read

Answer 2

Let's assume for a minute (it doesn't really matter, but it makes the calculation easier), that a seamstress works for 10 hours a day.

So with one person working, it takes 5 person hours to make a dress (10 hours for 2 dresses), but with two it takes only 4 (2 people at 10 hours/day is 20 person-hours for 5 dresses).

So more people means lower manufacturing cost per dress. This means a bigger dress "factory" is more efficient than a small one, so there are "economies of scale" or "increasing returns to scale" (at least at the low end) in the business of manufacturing dresses. If it took more work to produce each dress in a larger factory than in a smaller, then there would be decreasing returns to scale, etc.

Now suppose you are the owner of a factory with one seamstress. Hiring another seamstress would cost you C dollars per day, but would let you produce D extra dresses.

If each dress sold for more than C/D, you would make a profit hiring a second seamstress, otherwise, you'd lose money.

The marginal cost is the cost of the last item. With two seamstresses, the average cost is 4 hours/dress as compared with 5 hours/per dress with only one seamstress, but this is the average cost not the marginal cost.

To look at it from the marginal perspective, of the 5 dresses, the first two cost 5 hours each or 10 hours total, while the last three took a total of 10 hours so their marginal cost was 3-1/3 hours.

(You can treat marginal cost as time, or, using the $360/day pay scale, convert it to money)

HTH.