Exhibit 11-11 Exhibit 11-11 shows data on watch production.If the marginal resource cost is constant at $18 per unit of labor, how many workers should the firm hire to maximize its profit?

Question

Exhibit 11-11  Exhibit 11-11 shows data on watch production.If the marginal resource cost is constant at $18 per unit of labor, how many workers should the firm hire to maximize its profit?

Quizplus · Accepted Answer

To maximize profit, the firm should hire workers until the marginal revenue product of labor (MRPL) equals the marginal resource cost (MRC). From the provided table, we can derive the MRPL for each additional worker by subtracting the previous row's total product of labor (TPL) from the current row's TPL and multiplying it by the given price of watches ($30). For instance, the MRPL of the third worker is ($180 - $120) x $30 = $1,800. We can see that the MRPL increases with each additional worker until the fourth worker, at which point it decreases. At three workers, the MRPL is $2,100, which is greater than the MRC of $18. Therefore, the firm should hire three workers to maximize profit.

Exhibit 11-11 Exhibit 11-11 Shows Data on Watch Production