Companies can rent a manufacturing robot named RoboMan for $2,500 a month and must pay workers $20 an hour. The value of the marginal product of Roboman is $5,000, and the value of the marginal product of labor is $20. Companies should hire _________ RoboMen and _________ workers.
A) more; fewer
B) more; more
C) fewer; fewer
D) fewer; more
E) the same amount of; more

Question

Quizplus · Accepted Answer

The company should hire more RoboMen because the value of the marginal product of RoboMan ($5,000) is greater than the cost of renting it ($2,500). The company should hire fewer workers because the value of the marginal product of labor ($20) is equal to the cost of hiring workers ($20 per hour). Maximizing profits requires hiring factors of production up to the point where their marginal product equals their cost. Thus, the company should hire more RoboMen and fewer workers to increase profits.

Companies Can Rent a Manufacturing Robot Named RoboMan for $2,500