The Grungo Company has the following production function: $$\begin{array} { c c }
\begin{array} { c }
\text { Number of } \
\text { Workers }
\end{array} & \begin{array} { c }
\text { Number of } \
\text { Grungos Produced }
\end{array} \
\hline 0 & 0 \
1 & 10 \
2 & 19 \
3 & 26 \
4 & 31 \
5 & 34
\end{array}$$ If the real wage rate is 6, how many workers will the company hire?
A) 0
B) 1
C) 3
D) 5

Question

The Grungo Company has the following production function: $$\begin{array} { c c } 
\begin{array} { c } 
\text { Number of } \
\text { Workers }
\end{array} & \begin{array} { c } 
\text { Number of } \
\text { Grungos Produced }
\end{array} \
\hline 0 & 0 \
1 & 10 \
2 & 19 \
3 & 26 \
4 & 31 \
5 & 34
\end{array}$$ If the real wage rate is 6, how many workers will the company hire?
A) 0
B) 1
C) 3
D) 5

Quizplus · Accepted Answer

To determine how many workers the company will hire, we need to calculate the marginal product of labor (MPL) at each level of employment. MPL is the additional output produced by the last unit of labor employed. We can find MPL by calculating the change in output associated with an increase in labor by one unit.

The table below shows the calculation of MPL:

$$\begin{array} { c c c } 
\begin{array} { c } 
\text { Number of } \
\text { Workers }
\end{array} & \begin{array} { c } 
\text { Number of } \
\text { Grungos Produced }
\end{array} & \begin{array} { c } 
\text { MPL }
\end{array} \
\hline 0 & 0 & - \
1 & 10 & 10 \
2 & 19 & 9 \
3 & 26 & 7 \
4 & 31 & 5 \
5 & 34 & 3
\end{array}$$

As we can see, MPL decreases as the number of workers increases, indicating that there are diminishing returns to labor. To maximize output, the firm should hire workers up to the point where the real wage (w) equals the MPL.

In this case, the real wage is given as 6. Therefore, the firm should hire up to the point where MPL = 6. Looking at the table, we can see that MPL equals 6 at 3 workers. Therefore, the company will hire 3 workers.

The correct answer is C.

The Grungo Company Has the Following Production Function If the Real Wage Rate Is 6, How Many Workers