Suppose a firm sells a good for a perfectly competitive price of $5. The equilibrium wage rate is $10. The first worker it hires produces five units. Two workers produce a total of nine units. If it hires two workers, the value of marginal product for the second worker is:
A) $5.
B) $45.
C) $20.
D) $10.

Question

Quizplus · Accepted Answer

The value of the marginal product (VMP) is calculated as the change in total output from hiring an additional worker multiplied by the price of the good. The second worker increases output from 5 to 9 units, so the marginal product is 4 units. At a price of $5 per unit, the VMP is 4 units * $5 = $20.

Suppose a Firm Sells a Good for a Perfectly Competitive