Use the following information to answer the questions that follow.
Nicky L, owner of NLD Incorporated, knows that the marginal product of labor (MPL) for his workers can be defined as follows:
MPL = 32 - L
The total output a given level of workers can produce is found as:
Q = 32L - L²
He also knows that the price of his output is $3. His profits can be found as:
Profit = P × Q - W × L
-What wage would be required to allow Nicky L to hire the twenty-fifth worker?
A) $3
B) $7
C) $21
D) $125
E) $25

Question

Quizplus · Accepted Answer

To hire the 25th worker, we need to find the wage (W) at which Nicky L's profits will be zero. This is because Nicky L will only hire the additional worker if the additional profits generated (which is the MPL multiplied by the price of output) is greater than or equal to the additional cost of hiring the worker (which is the wage).

Setting Profit = 0, we get:

$3(32(25) - 25²) - W(25) = 0
2400 - 75W = 0
W = $32

Therefore, to hire the 25th worker, Nicky L would need to pay a wage of $32 per hour.

Since $32 is greater than the price of output ($3), Nicky L would not hire the additional worker, as the additional cost of hiring the worker is greater than the additional profits generated.

Therefore, the best choice is C, as it represents the minimum wage required for Nicky L to hire the 25th worker, and it also illustrates that Nicky L would not hire this worker because the wage cost is higher than the additional profits generated.

Use the Following Information to Answer the Questions That Follow