A soybean farmer sells soybeans in a perfectly competitive market and hires labor in a perfectly competitive market. The market price of soybeans is $10 a bushel, the wage rate is $15, the farmer employs eleven workers and the marginal product of the eleventh worker is 18. What would you advise this farmer to do?
A) Do nothing because the wage rate and the marginal product of the last worker hired are equal.
B) Reduce employment because the wage paid is greater than the marginal revenue product.
C) Increase employment because the wage paid is less than the marginal revenue product.
D) Reduce the product price so that the wage and marginal revenue product will be equal.

Question

Quizplus · Accepted Answer

The marginal revenue product (MRP) is calculated as the marginal product of the worker (18 bushels) times the market price of soybeans ($10), which equals $180. Since the wage rate ($15) is less than the MRP, the farmer should increase employment.

A Soybean Farmer Sells Soybeans in a Perfectly Competitive Market