Figure 18-1
On the graph, L represents the quantity of labor and Q represents the quantity of output per week.
-Refer to Figure 18-1. Suppose the firm sells its output for $12 per unit, and it pays each of its workers $700 per week. How many workers will the firm hire to maximize its profit?
A)2
B)3
C)4

Question

Figure 18-1
On the graph, L represents the quantity of labor and Q represents the quantity of output per week. 
-Refer to Figure 18-1. Suppose the firm sells its output for $12 per unit, and it pays each of its workers $700 per week. How many workers will the firm hire to maximize its profit?
A)2 
B)3 
C)4

Quizplus · Accepted Answer

The firm's profit is equal to revenue minus the total cost, which is the product of the wage rate and the number of workers. To determine the profit-maximizing number of workers, we need to find the point on the graph where the marginal revenue product of labor (the slope of the production function multiplied by the price of output) equals the wage rate. This occurs where the MRP curve intersects the wage rate line at L=4. Therefore, the firm will hire 4 workers to maximize its profit.

Figure 18-1 on the Graph, L Represents the Quantity of Labor and Labor