Table 18-1.The table displays data for a small,competitive,profit-maximizing firm that produces and sells envelopes.The time frame is one week.

-Refer to Table 18-1.Suppose the firm sells each box of envelopes that it produces for $6.The firm would not be interested in hiring a third worker unless the wage fell from its current level of $600 to what level?

Question

Table 18-1.The table displays data for a small,competitive,profit-maximizing firm that produces and sells envelopes.The time frame is one week.
 
-Refer to Table 18-1.Suppose the firm sells each box of envelopes that it produces for $6.The firm would not be interested in hiring a third worker unless the wage fell from its current level of $600 to what level?

Quizplus · Accepted Answer

To determine the marginal product of hiring a third worker, we need to calculate the additional output that the third worker would produce. The additional output of the third worker is 75-60=15 boxes. The additional cost of hiring the third worker would be $600, so the marginal cost of producing an additional box of envelopes is $40 ($600/15). If the firm sells each box for $6, then the marginal revenue of producing an additional box is $6. Therefore, the firm would only be interested in hiring a third worker if the marginal revenue of producing an additional box is greater than the marginal cost. 
6 > 40, so the firm would not hire a third worker at the current wage rate of $600.
If the wage rate fell to $551, then the total cost of hiring a third worker would be $1,651 ($600+$600+$451), and the marginal cost of producing an additional box would be $30.67 ($1,651/54). Under these conditions, the marginal revenue of producing an additional box would still be $6. Therefore, the firm would hire a third worker if the wage rate fell to $551.