Table 5.1-Labor and output data
-What is the marginal physical product of the first unit of labor in Table 5.1?
A) 0
B) 14
C) 16
D) 30

Question

Table 5.1-Labor and output data 
-What is the marginal physical product of the first unit of labor in Table 5.1?
A) 0 
B) 14 
C) 16 
D) 30

Quizplus · Accepted Answer

The marginal physical product (MPP) of the first unit of labor is the difference between the output produced with one unit of labor and the output produced with zero units of labor, which is equal to 14 (28-14). The best choice(s) would depend on the goal of the firm. If the goal is to maximize profits, the firm should continue to hire labor until the marginal revenue product (MRP) equals the wage rate, which in this case would be the third unit of labor (since MRP for the third unit of labor is $48, which equals the wage rate). So, the firm should hire three units of labor.

Table 5.1-Labor and Output Data