Questions are based on the data in the following table. Assume that the labor market is perfectly competitive.

$\begin{array}{cc}
\begin{array}{cc}
\underline{\text { Labor }} & \underline{\text { Output }} \
0 & 0 \
1 & 15 \
2 & 29 \
3 & 42 \
4 & 54 \
5 & 65
\end{array}
\begin{array}{r}
\underline{\text { Price }} \
\$ 2.20 \
2.00 \
1.80 \
1.60 \
1.40 \
1.20
\end{array}
\end{array}$

-If the wage is $11.00,how many workers will this profit-maximizing firm choose to employ?
A)2
B)3
C)4
D)5

Question

Questions  are based on the data in the following table. Assume that the labor market is perfectly competitive.

$\begin{array}{cc}
\begin{array}{cc}
\underline{\text { Labor }} & \underline{\text { Output }} \
0 & 0 \
1 & 15 \
2 & 29 \
3 & 42 \
4 & 54 \
5 & 65
\end{array}
\begin{array}{r}
\underline{\text { Price }} \
\$ 2.20 \
2.00 \
1.80 \
1.60 \
1.40 \
1.20
\end{array}
\end{array}$

-If the wage is $11.00,how many workers will this profit-maximizing firm choose to employ?
A)2
B)3
C)4
D)5

Quizplus · Accepted Answer

At each level of employment, the firm will compare the marginal revenue product (MRP) of labor to the wage rate. The MRP is equal to the price of the output multiplied by the marginal product of labor (MPL). For example, when employing two workers, the MRP of the third worker is calculated as ($1.80)*(13) = $23.40. Since this is less than the wage rate of $11.00, the firm would not choose to hire a fourth worker. By comparing the MRP to the wage rate for each level of employment, we can see that the firm will choose to employ three workers, as this is the point at which the MRP of the fourth worker is less than the wage rate.

Questions Are Based on the Data in the Following