Table 18-5
-Refer to Table 18-5. How many workers should the firm hire?
A)1
B)2
C)3

Question

Table 18-5 
-Refer to Table 18-5. How many workers should the firm hire?
A)1 
B)2 
C)3

Quizplus · Accepted Answer

In order to determine the optimal number of workers to hire, we need to compare the marginal product (MP) to the wage rate. As we move from left to right in the table, the MP first increases (from 5 to 20), then decreases (to 15), and finally becomes negative. At the same time, the wage rate stays constant at $20 per hour. Therefore, the first worker contributes 5 units of output for a cost of $20, or an MP of 5/20 = 0.25. The second worker adds another 15 units of output for an additional cost of $20, or an MP of 15/20 = 0.75. Thus, the MP of the second worker is higher than the MP of the first worker, so hiring a second worker is a good idea. However, when we consider the third worker, we see that the MP is only 5 units per hour, but the cost is still $20 per hour. This means that the marginal cost (MC) is greater than the MP, so hiring a third worker would actually reduce profits. Therefore, the optimal number of workers to hire is 3.

Table 18-5 -Refer to Table 18-5. How Many Workers Should the Firm