A manager of a firm with market power faces the marginal revenue product and average revenue product curves shown below.The firm incurs weekly fixed costs of $1,800.The firm employs a single variable input,labor,which costs $600 per worker each week. Given the above,in order to maximize profit,the manager should hire ________ workers per week.

Question

A manager of a firm with market power faces the marginal revenue product and average revenue product curves shown below.The firm incurs weekly fixed costs of $1,800.The firm employs a single variable input,labor,which costs $600 per worker each week.  Given the above,in order to maximize profit,the manager should hire ________ workers per week.

Quizplus · Accepted Answer

The profit-maximizing rule for a firm with market power is to hire workers up to the point where the marginal revenue product of labor equals the wage rate. In this case, the wage rate is $600 per worker per week. At that wage rate, the marginal revenue product of labor is equal to the slope of the average revenue product curve, which is the point where the curve intersects the horizontal axis. This occurs at a quantity of 12 workers. Therefore, the manager should hire 12 workers per week in order to maximize profit.

A Manager of a Firm with Market Power Faces the Marginal