A firm producing ink pens reports the following production information:
# of Workers Total Product
(boxes of pens per hour)
0 0
1 45
2 80
3 100
4 116
5 126
6 131
The pens sell in a competitive market at a price of $0.50 per box. The firm hires workers in a competitive labor market at a wage of $9 per hour. How many workers should the firm hire? Explain your answer.
The firm should hire three workers. The marginal revenue product of the third
worker is $10 (20 x $0.50), which is greater than the wage of $9 . However, the
marginal revenue product of the fourth worker is only $8 (16 x $0.50). It would
not be profitable for the firm to hire the fourth worker and thus only three
workers would be hired.
You might also like to view...
In the classical model, the loanable funds market will clear when saving
a. equals investment plus government purchases minus net taxes b. equals net taxes c. equals investment d. equals investment plus government purchases e. minus taxes equals investment plus government purchases
Other things being equal, the effect of a decrease in the price of grapes would be illustrated by
a. a rightward shift in the demand curve for grapes. b. an increase in the quantity demanded for grapes. c. a leftward shift in the demand curve for grapes. d. a decrease in the quantity demanded grapes.
The legislation that prohibited "every contract, combination, ...or conspiracy" that limits competition is the:
A. Federal Trade Commission Act. B. Clayton Act. C. Sherman Act. D. Celler-Kefauver Act.
In a natural monopoly situation
A. there is no need for government regulation. B. producers try to differentiate their product with advertising. C. there are large economies of scale relative to demand. D. the firm has an upward sloping average cost curve.