(Table: Workers and Corn Output) Laura is a price-taking farmer who produces corn.Assume the wage rate for workers is $125 and the price per bushel of corn is $10.The table Workers and
Corn Output shows Laura's production function.Suppose Laura is employing seven workers.If she lets the seventh worker go and reduces employment to six workers, her profits will:
A)increase by $20.
B)decrease by $970.
C)increase by $105.
D)increase by $90.

Question

Quizplus · Accepted Answer

The marginal product of the seventh worker is the difference in corn output between six and seven workers. If the output with six workers is X and with seven workers is Y, then the marginal product is Y-X. The revenue from this marginal product is (Y-X) * $10. The cost of the seventh worker is $125. If the revenue from the marginal product is less than $125, profits increase by the difference when the worker is let go.

(Table: Workers and Corn Output) Laura Is a Price-Taking Farmer