Exhibit 26-5

-Refer to Exhibit 26-5. Assume the firm is a factor price taker and that the price of a unit of labor is constant at $1,200. The firm should hire __________ of labor.

Question

Exhibit 26-5
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-Refer to Exhibit 26-5. Assume the firm is a factor price taker and that the price of a unit of labor is constant at $1,200. The firm should hire __________ of labor.

Quizplus · Accepted Answer

The firm should hire labor up to the point where the marginal revenue product (MRP) of labor equals the wage rate. Without the specific details from Exhibit 26-5, the general principle is that a firm maximizes profit by hiring additional units of labor as long as the MRP of each additional unit is at least as great as the cost of hiring that unit (in this case, $1,200). Assuming choice C (three units) is correct, it implies that the MRP of the third unit of labor is at least $1,200, and the MRP of the fourth unit is less than $1,200, making three units the optimal choice.

Exhibit 26-5 ​

Exhibit 26-5