Refer to the information provided in Figure 10.1 below to answer the question(s) that follow. Figure 10.1
-Refer to Figure 10.1. This firm is currently hiring 16 workers and paying a wage of $10. This firm should
A) do nothing because it is maximizing profits.
B) reduce employment to 15 workers to increase profits.
C) reduce employment to 14 workers to increase profits.
D) increase employment to 17 workers to increase profits.

Question

Refer to the information provided in Figure 10.1 below to answer the question(s) that follow.  Figure 10.1
-Refer to Figure 10.1. This firm is currently hiring 16 workers and paying a wage of $10. This firm should
A) do nothing because it is maximizing profits. 
B) reduce employment to 15 workers to increase profits. 
C) reduce employment to 14 workers to increase profits. 
D) increase employment to 17 workers to increase profits.

Quizplus · Accepted Answer

To maximize profits, a firm should hire workers up to the point where the marginal revenue product (MRP) of labor equals the wage rate. If the firm is currently hiring 16 workers at a wage of $10, but could increase profits by reducing employment, it suggests that the MRP of the 16th worker is less than $10. Reducing employment to 15 workers would align the number of workers more closely with the point where the MRP equals the wage rate, thereby increasing profits.

Refer to the Information Provided in Figure 10