Jose, a corn farmer, pays his workers $8 an hour.At his current level of labor use, the marginal product of an additional hour of labor is three bushels of corn.The market price of corn is $2.75.In order to maximize his profits, Jose should:

Question

Quizplus · Accepted Answer

Since the marginal product of an additional hour of labor is positive (3 bushels of corn) and the market price of corn is higher than the wage rate ($2.75 > $8), Jose should hire more labor to increase his profits. This is because the additional revenue from the extra bushels of corn produced by the additional hour of labor ($8.25) is greater than the cost of the extra hour of labor ($8).

Jose, a Corn Farmer, Pays His Workers $8 an Hour