Liyun owns a small flower shop and the industry is perfectly competitive.She is considering whether or not to hire an additional worker.The wage rate for the worker is $500 per week; the marginal product of the additional worker would be 100 units per week; and the price of the units produced is $10 per unit.What should Liyun do?

Question

Quizplus · Accepted Answer

The marginal revenue product (MRP) is calculated by multiplying the marginal product of labor (MPL) by the price of the output (P). In this case, MRP = MPL x P = 100 x $10 = $1000. Since the wage rate for the additional worker is only $500, Liyun would earn a net benefit of $500 from hiring the additional worker. Therefore, it is profitable for Liyun to hire the additional worker.

Liyun Owns a Small Flower Shop and the Industry Is