You have been hired by a data processing firm to provide economic advice. The owner of the firm tells you that the firm's only variable input is the number of data-entry operators. The hourly wage for data-entry operators is $15.00. The marginal revenue product curve for data-entry operators reaches its maximum at three workers with a marginal revenue product of $12.00. What advice would you give this firm?
A) Hire three data-entry operators so as to minimize the amount of money the firm will lose.
B) Shut down immediately, as the firm is not able to cover all of its variable costs.
C) Increase the wage rate paid to data-entry operators so that their marginal revenue product will increase.
D) Produce as much as possible so as to maximize the difference between the wage paid to data-entry operators and their marginal revenue product.

Question

Quizplus · Accepted Answer

The firm should shut down immediately because the marginal revenue product ($12.00) is less than the hourly wage ($15.00), meaning the firm cannot cover its variable costs for each additional worker.

You Have Been Hired by a Data Processing Firm to Provide