Asked by Michelle Kuruc on Jul 23, 2024
Verified
Suppose Cassie's Candles is a profit-maximizing competitive firm. Cassie sells hand-made candles for $10 each. She will pay an hourly wage of $20 so long as the marginal productivity of a worker equals or exceeds two candles per hour.
Profit-maximizing
The process or strategy of adjusting production and prices to achieve the highest possible profit.
Marginal Productivity
The additional output produced as a result of adding one more unit of a specific input, keeping all other inputs constant.
- Learn about the concept of derived labor demand and its correlations with fluctuations in other market areas.
Verified Answer
RP
Rachael PaleyJul 26, 2024
Final Answer :
True
Explanation :
In a competitive market, a profit-maximizing firm will hire additional labor as long as the value of the marginal product of labor (VMPL) is equal to or greater than the wage rate. Here, if a worker produces at least two candles per hour, the value of their marginal product is $20 or more (2 candles * $10 per candle), which equals or exceeds the hourly wage of $20, making it profitable for Cassie to employ the worker.
Learning Objectives
- Learn about the concept of derived labor demand and its correlations with fluctuations in other market areas.