Your boss is trying to decide whether to buy out a rival company and asks for your advice.The boss says that the rival will be bought if there is evidence that the rival is operating inefficiently.(Your company will then improve its efficiency and increase profits.) The rival will not be bought if there is evidence that the rival is already operating efficiently.Your boss gives you the following data on the rival's operations: The average product of labor equals 4, the marginal product of labor equals 10, the wage equals $20, and the price of output equals $5.Based on this information, you should tell your boss to buy the rival.False

Question

Quizplus · Accepted Answer

The rival is operating inefficiently because the marginal product of labor (10) is greater than the average product of labor (4), indicating that adding more labor increases output significantly. Additionally, the marginal revenue product (MRP = marginal product of labor * price of output = 10 * $5 = $50) is greater than the wage ($20), suggesting that the rival could profitably hire more labor, indicating inefficiency.

Your Boss Is Trying to Decide Whether to Buy Out