Table 18-10
-Refer to Table 18-10. This table describes the number of baseballs a manufacturer can produce per day with different quantities of labor. Each baseball sells for $5 in a competitive market and the firm pays each unit of labor a wage equal to $320 per day. 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

Table 18-10 
-Refer to Table 18-10. This table describes the number of baseballs a manufacturer can produce per day with different quantities of labor. Each baseball sells for $5 in a competitive market and the firm pays each unit of labor a wage equal to $320 per day. 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, we need to find the labor input (units of labor) that produces the highest total revenue minus total cost. We can calculate total revenue by multiplying the number of baseballs produced by the price at which they are sold:
Total revenue = Price x Quantity
Total revenue = $5 x Quantity

To calculate total cost, we need to consider both variable and fixed costs. Variable costs are those that vary with the level of production, such as labor costs, while fixed costs do not vary with production. In this case, the only variable cost is the cost of labor, which is $320 per unit of labor per day.

Total cost = Variable cost + Fixed cost
Total cost = (Units of labor x $320) + $800

(Note that the fixed cost of $800 represents the cost of other inputs, such as equipment and materials, that do not vary with the level of production).

With this information, we can calculate profit as:

Profit = Total revenue - Total cost
Profit = ($5 x Quantity) - [(Units of labor x $320) + $800]

To find the level of labor that maximizes profit, we need to calculate profit for each level of labor and then choose the level that yields the highest profit. The results are shown in the following table:

| Units of labor | Quantity | Total revenue | Total cost | Profit |
|---------------|----------|--------------|------------|--------|
| 1             | 20       | $100         | $1,120       | -$1,020   |
| 2             | 50       | $250         | $1,440       | -$1,190   |
| 3             | 85       | $425         | $1,760       | -$1,335   |
| 4             | 120      | $600         | $2,080       | -$1,480   |
| 5             | 150      | $750         | $2,400       | -$1,650   |

As we can see, profit is maximized at 4 units of labor, where profit is -$1,480 (meaning a loss), which is the lowest loss among all the options. Therefore, the firm should hire 4 units of labor to produce the baseballs.

Table 18-10 -Refer to Table 18-10. This Table Describes the Number of the Number