Asked by Judie Alfaro on May 16, 2024
Verified
Refer to Table 18-1. Suppose that the firm pays its workers $29 per day. Each unit of output sells for $11. How many workers should the firm hire?
A) 5
B) 2
C) 3
D) 4
Marginal Product
The additional output that results from using one more unit of a particular input while keeping other inputs constant.
Output
The quantity of products or services generated by a business, sector, or economic system over a certain timeframe.
Wage
Compensation or payment to an employee for labor or services rendered, typically expressed on an hourly, daily, or piecework basis.
- Ascertain the price of the marginal product produced by labor.
Verified Answer
JN
Jimmy NguyenMay 22, 2024
Final Answer :
D
Explanation :
The firm should hire workers as long as the revenue generated by the additional worker is greater than or equal to the cost of hiring that worker. The marginal product of labor (additional output produced by an additional worker) decreases as more workers are hired, indicating diminishing returns. To find the optimal number of workers, calculate the marginal revenue product (MRP = marginal product of labor * price of output) for each worker and compare it to the wage ($29).- 1st worker: MRP = (14 - 0) * $11 = $154- 2nd worker: MRP = (23 - 14) * $11 = $99- 3rd worker: MRP = (30 - 23) * $11 = $77- 4th worker: MRP = (34 - 30) * $11 = $44- 5th worker: MRP = (36 - 34) * $11 = $22- 6th worker: MRP = (37 - 36) * $11 = $11The 4th worker's MRP ($44) is the last one that exceeds the wage of $29. Therefore, the firm should hire 4 workers.
Learning Objectives
- Ascertain the price of the marginal product produced by labor.