Table 18-1
-Refer to Table 18-1. Suppose that the firm pays its workers $50 per day. Each unit of output sells for $20. How many days of labor should the firm hire?
A)3
B)4
C)5

Question

Table 18-1 
-Refer to Table 18-1. Suppose that the firm pays its workers $50 per day. Each unit of output sells for $20. How many days of labor should the firm hire?
A)3 
B)4 
C)5

Quizplus · Accepted Answer

The marginal revenue product (MRP) for each worker can be calculated by multiplying the marginal product of labor (MPL) by the price of output (P). For example, for the first worker, MRP = MPL x P = 40 x 20 = $800. For the second worker, MRP = 28 x 20 = $560. For the third worker, MRP = 20 x 20 = $400. For the fourth worker, MRP = 12 x 20 = $240. For the fifth worker, MRP = 0 and thus the firm should not hire a fifth worker. The firm should hire up to the point where the MRP equals the wage rate, which is $50. This occurs for the third worker where MRP = $400, so the firm should hire three workers.

Table 18-1 -Refer to Table 18-1. Suppose That the Firm Pays Its