You have been hired by the No Hassle Collection Agency to provide economic advice. The owner of the agency tells you that No Hassle's only variable input is the number of collection agents. The hourly wage for collection agents is $40.00. The marginal revenue product curve for collection agents reaches its maximum at five workers with a marginal revenue product of $34.00. What advice would you give this firm?
A) Hire five collection agents 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 collection agents 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 collection agents and their marginal revenue product.

Question

Quizplus · Accepted Answer

The firm should shut down immediately because the marginal revenue product ($34.00) is less than the hourly wage ($40.00), meaning the firm is not covering its variable costs for each additional worker.

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