The following question(s)deal with The Widget Company, which produces widgets. Widgets are produced according to: $$\begin{array} { | c | c | }
\hline \text { Number of Widget Workers } & \text { Number of Widgets Produced } \
\hline 0 & 0 \
\hline 1 & 12 \
\hline 2 & 22 \
\hline 3 & 30 \
\hline 4 & 36 \
\hline 5 & 40 \
\hline
\end{array}$$
-If the real wage is equal to 7 widgets, and only an integer number of workers can be hired, The Widget Company should hire
A)2 workers.
B)3 workers.
C)4 workers.
D)5 workers.
E)6 workers.

Question

The following question(s)deal with The Widget Company, which produces widgets. Widgets are produced according to: $$\begin{array} { | c | c | } 
\hline \text { Number of Widget Workers } & \text { Number of Widgets Produced } \
\hline 0 & 0 \
\hline 1 & 12 \
\hline 2 & 22 \
\hline 3 & 30 \
\hline 4 & 36 \
\hline 5 & 40 \
\hline
\end{array}$$
-If the real wage is equal to 7 widgets, and only an integer number of workers can be hired, The Widget Company should hire
A)2 workers.
B)3 workers.
C)4 workers.
D)5 workers.
E)6 workers.

Quizplus · Accepted Answer

The Widget Company should aim to maximize its profit, which occurs when the marginal product of labor (MPL) equals the real wage. The MPL is the additional output produced by an additional worker. From 1 to 2 workers, the MPL is 10 widgets (22-12), from 2 to 3 workers, it's 8 widgets (30-22), from 3 to 4 workers, it's 6 widgets (36-30), and from 4 to 5 workers, it's 4 widgets (40-36). Since the real wage is 7 widgets, the company should hire workers as long as their MPL is greater than or equal to the real wage. The MPL is greater than or equal to the real wage up to the third worker (MPL from 2 to 3 workers is 8, which is greater than the real wage of 7), but not for the fourth worker (MPL from 3 to 4 workers is 6, which is less than the real wage). Therefore, the company should hire 3 workers.

The Following Question(s)deal with the Widget Company, Which Produces Widgets