A competitive firm sells its output for $50 per unit. Assume that labor is the only input that varies for the firm. The marginal product of the 10th worker is 10 units of output per day; the marginal product of the 11th worker is 8 units of output per day. The firm pays its workers a wage of $160 per day. For the 10th worker, the value of the marginal product of labor is
A)$250.
B)$400.
C)$500.
D)$1,280.

Question

Quizplus · Accepted Answer

The value of the marginal product of the 10th worker is equal to the marginal product of labor multiplied by the price of the output. Therefore, the value of the marginal product of the 10th worker is:

10 units/day × $50/unit = $500/day

Since the firm pays a wage of $160 per day, it should hire the 10th worker as long as the value of his or her marginal product is greater than or equal to this wage. In this case, the value of the marginal product of the 10th worker is $500 per day, which is greater than $160 per day. Therefore, the firm should hire the 10th worker.

The 11th worker should not be hired, because his or her marginal product is less than the wage.

A Competitive Firm Sells Its Output for $50 Per Unit