Sonny's Surfer Shop produces and sells custom surf boards. Assume that labor is the only input that varies for the firm. The firm's owner has determined that if she hires 10 workers, the firm can produce 10 surf boards per day. If she hires 11 workers, the firm can produce 12 surfboards per day. The firm sells each surfboard for $2,000, and it pays each of its workers $200 per day. Which of the following is correct?
A)For the 11th worker, the value of the marginal product of labor is $400.
B)For the 11th worker, the value of the marginal product of labor is $4,000.
C)The firm should not hire the 11th worker since hiring this worker reduces profit.
D)In order to justify hiring the 11th worker the firm will need to raise the price of a surfboard.

Question

Quizplus · Accepted Answer

The marginal product of labor for the 11th worker is the additional surfboard produced, which is 1, multiplied by the selling price of each surfboard, which is $2,000. Therefore, the value of the marginal product of labor for the 11th worker is $2,000. Since the cost of hiring the 11th worker is $200, the firm's profit increases by $1,800 ($2,000 - $200). Hiring the 11th worker is, therefore, profitable for the firm.

Sonny's Surfer Shop Produces and Sells Custom Surf Boards