Figure 18-2
The figure below shows the production function for a particular firm.
-Refer to Figure 18-2. Suppose the firm pays a wage equal to $160 per unit of labor and sells its output at $10 per unit. How many units of labor should the firm hire to maximize profit?
A)2 units
B)3 units
C)4 units
D)5 units

Question

Figure 18-2
The figure below shows the production function for a particular firm. 
-Refer to Figure 18-2. Suppose the firm pays a wage equal to $160 per unit of labor and sells its output at $10 per unit. How many units of labor should the firm hire to maximize profit?
A)2 units 
B)3 units 
C)4 units 
D)5 units

Quizplus · Accepted Answer

To maximize profit, the firm should hire labor up to the point where the marginal revenue product of labor (MRP) equals the wage rate. At 3 units of labor, the MRP is equal to $140 (the slope of the production function at that point), which is less than the wage rate of $160. Hiring additional units of labor would result in a decrease in profit, as the MRP would be less than the wage rate. Therefore, hiring 3 units of labor would maximize the firm's profit.

Figure 18-2 The Figure Below Shows the Production Function for a Particular