The Widget Company has the following production function:
$$\begin{array} { c c }
\begin{array} { c }
\text { Number of } \
\text { Workers }
\end{array} & \begin{array} { c }
\text { Number of } \
\text { Widgets Produced }
\end{array} \
\hline 0 & 0 \
1 & 9 \
2 & 17 \
3 & 24 \
4 & 30 \
5 & 35
\end{array}$$
If widgets sell for $6 each and the wage rate is $33,how many workers will the company hire?
A)0
B)1
C)2
D)4

Question

The Widget Company has the following production function:
$$\begin{array} { c c } 
\begin{array} { c } 
\text { Number of } \
\text { Workers }
\end{array} & \begin{array} { c } 
\text { Number of } \
\text { Widgets Produced }
\end{array} \
\hline 0 & 0 \
1 & 9 \
2 & 17 \
3 & 24 \
4 & 30 \
5 & 35
\end{array}$$
If widgets sell for $6 each and the wage rate is $33,how many workers will the company hire?
A)0
B)1
C)2
D)4

Quizplus · Accepted Answer

We can calculate the marginal product of labor (MPL) by finding the change in output for each additional worker:

MPL of worker 1: 9 – 0 = 9 
MPL of worker 2: 17 – 9 = 8 
MPL of worker 3: 24 – 17 = 7 
MPL of worker 4: 30 – 24 = 6 
MPL of worker 5: 35 – 30 = 5

Since MPL is decreasing as more workers are hired, the company should continue to hire workers until MPL equals the wage rate (33). This occurs at 4 workers, so the company should hire 4 workers to maximize profits.

The Widget Company Has the Following Production Function If Widgets Sell for $6 Each and the Wage Rate