Suppose that a firm sells a good for a perfectly competitive price of $5.The equilibrium wage rate is $10.The first worker it hires produces five units.Two workers produce a total of nine units.If it hires two workers,the value of marginal product for the second worker is:
A)$5.
B)$45.
C)$20.
D)$10.

Question

Quizplus · Accepted Answer

The value of marginal product (VMP) for each worker is the additional revenue the firm earns by hiring that worker.

Given that the price of the good is $5 and the first worker produces 5 units, their VMP is:

VMP1 = 5 x 5 = $25

For two workers, the firm produces 9 units. We can find the VMP of the second worker as follows:

VMP2 = (total revenue with two workers) - (total revenue with one worker)

VMP2 = (9 x 5) - (5 x 5) = $20

Therefore, the answer is C) $20, as this is the VMP of the second worker.

As for the best choice(s), it depends on the goal of the firm. If the firm wants to maximize profits, it should hire the second worker as long as their wage rate is less than or equal to their VMP of $20. If the wage rate for the second worker is greater than $20, the firm should stick with only one worker.

Suppose That a Firm Sells a Good for a Perfectly