Table 17-3

Hotspur Incorporated, a manufacturer of microwave ovens, is a price taker in its input and output markets. The firm hires labor at a constant wage rate of $800 per week and sells microwave ovens at a constant price of $80. Table 17-3 shows the relationship between the quantity of labor it hires and the quantity of microwave ovens it produces. Assume that labor is the only variable input.
-Refer to Table 17-3.What is the amount of profit added as a result of hiring the fourth worker?

Question

Table 17-3
  
Hotspur Incorporated, a manufacturer of microwave ovens, is a price taker in its input and output markets. The firm hires labor at a constant wage rate of $800 per week and sells microwave ovens at a constant price of $80. Table 17-3 shows the relationship between the quantity of labor it hires and the quantity of microwave ovens it produces. Assume that labor is the only variable input.
-Refer to Table 17-3.What is the amount of profit added as a result of hiring the fourth worker?

Quizplus · Accepted Answer

To calculate the profit added as a result of hiring the fourth worker, we need to calculate the total revenue generated by the additional output produced by the fourth worker and deduct the additional cost incurred due to hiring this worker.

Adding the fourth worker increases the output from 45 to 60 microwave ovens per week (i.e. 15 additional ovens).

Total revenue generated by the additional output = 15 x $80 = $1,200

The additional cost incurred due to hiring the fourth worker is equal to the wage paid to this worker, which is $800.

Therefore, the profit added as a result of hiring the fourth worker = Total revenue generated - Additional cost incurred = $1,200 - $800 = $400.

Hence, the correct answer is D).

Table 17-3 Hotspur Incorporated, a Manufacturer of Microwave Ovens, Is a Price