Figure 18-5
The figure shows a particular profit-maximizing, competitive firm's value-of-marginal-product (VMP) curve. On the horizontal axis, L represents the number of workers. The time frame is daily.
-Refer to Figure 18-5. Assume that two points on the firm's production function are (L = 2, Q = 180) and (L = 3, Q = 228), where L = number of workers and Q = quantity of output. The firm pays its workers $120 per day. The firm's non-labor costs are fixed, and they amount to $250 per day. We can conclude that
A)the firm sells its output for $12 per unit.
B)if the firm is currently employing 2 workers per day, then profit could be increased by $48 per day if a third worker is hired.
C)the marginal cost per unit of output is $2.50 when output is increased from 180 units per day to 228 units per day.
D)the firm's maximum profit occurs when it hires 3 workers per day.

Question

Figure 18-5
The figure shows a particular profit-maximizing, competitive firm's value-of-marginal-product (VMP) curve. On the horizontal axis, L represents the number of workers. The time frame is daily. 
-Refer to Figure 18-5. Assume that two points on the firm's production function are (L = 2, Q = 180) and (L = 3, Q = 228), where L = number of workers and Q = quantity of output. The firm pays its workers $120 per day. The firm's non-labor costs are fixed, and they amount to $250 per day. We can conclude that
A)the firm sells its output for $12 per unit. 
B)if the firm is currently employing 2 workers per day, then profit could be increased by $48 per day if a third worker is hired. 
C)the marginal cost per unit of output is $2.50 when output is increased from 180 units per day to 228 units per day. 
D)the firm's maximum profit occurs when it hires 3 workers per day.

Quizplus · Accepted Answer

To calculate the marginal cost per unit of output, we need to divide the additional cost of hiring one more worker ($120) by the additional output produced by that worker (Q2 - Q1 = 228 - 180 = 48). So the marginal cost per unit of output is $120/48 = $2.50. We cannot determine whether hiring a third worker would increase profit without knowing the firm's VMP at that level of employment. And while the firm's maximum profit occurs where VMP = wage rate, we do not have enough information to determine the exact number of workers needed to achieve this. We also cannot determine the firm's selling price based on the information given. Therefore, the only conclusion we can draw is that the marginal cost per unit of output is $2.50.

Figure 18-5 The Figure Shows a Particular Profit-Maximizing, Competitive Firm's Value-Of-Marginal-Product (VMP)