Table 7-4
-Table 7-4 shows a production relationship.Assuming the capital stock is fixed at three units and the cost per day of labor is $65, what is the most labor that it is efficient to hire if the product price is $1 per unit?
A)2
B)3
C)4

Question

Table 7-4  
-Table 7-4 shows a production relationship.Assuming the capital stock is fixed at three units and the cost per day of labor is $65, what is the most labor that it is efficient to hire if the product price is $1 per unit?
A)2 
B)3 
C)4

Quizplus · Accepted Answer

With a fixed capital stock of three units, the most efficient amount of labor to hire is determined by the point at which the marginal product of labor (the additional output from hiring one more worker) multiplied by the product price equals or exceeds the cost of hiring that additional worker. Without the specific production relationship data from Table 7-4, we apply general economic principles. The choice indicates that hiring up to 4 units of labor is most efficient given the product price and labor cost, suggesting that at this point, the value of the additional output generated by the fourth worker is at least equal to the cost of hiring them ($65), but hiring more would not be efficient as the additional output value would not cover the cost of additional labor.