Use the following to answer questions:
-(Table: Workers and Corn Output) Look at the table Workers and Corn Output. Laura is a price-taking farmer who produces corn. Assume the wage rate for workers is $125 and the price per bushel of corn is $10. Suppose Laura is employing seven workers. If she reduces employment to six workers, her profits will:
A) increase by $20.
B) decrease by $970.
C) increase by $105.
D) increase by $90.

Question

Use the following to answer questions: 
-(Table: Workers and Corn Output) Look at the table Workers and Corn Output. Laura is a price-taking farmer who produces corn. Assume the wage rate for workers is $125 and the price per bushel of corn is $10. Suppose Laura is employing seven workers. If she reduces employment to six workers, her profits will:
A) increase by $20. 
B) decrease by $970. 
C) increase by $105. 
D) increase by $90.

Quizplus · Accepted Answer

Laura's profit is equal to the revenue she earns from selling her corn minus the wages she pays to her workers. If she reduces employment from seven workers to six workers, her output will decrease. This means that she will earn less revenue from selling her corn. However, she will also pay less in wages. The net effect of these two changes is that her profit will increase. The amount by which her profit increases is equal to the difference between the wages she saves by reducing employment and the decrease in revenue from selling less corn. In this case, the wages she saves are $125, and the decrease in revenue is $105. Therefore, her profit will increase by $105.

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