Suppose the marginal physical product of labor at a shoe string factory is 1,500 shoestrings per hour at 80 hours, 1,200 per hour shoestrings at 90 hours, 800 shoestrings per at 100 hours, and 300 shoestrings per hour at 110 hours.If a shoestring maker's wages are $60 per hour and each string sells for $0.05.What is the optimal use of labor for making shoestrings?
A)80 hours
B)90 hours
C)100 hours
D)110 hours

Question

Quizplus · Accepted Answer

To determine the optimal use of labor, we need to find the point where the marginal revenue product (MRP) equals the wage rate. 
MRP = marginal physical product x price 
At 80 hours, MRP = 1,500 x 0.05 = $75 per hour 
At 90 hours, MRP = 1,200 x 0.05 = $60 per hour 
At 100 hours, MRP = 800 x 0.05 = $40 per hour 
At 110 hours, MRP = 300 x 0.05 = $15 per hour 
Therefore, the shoestring factory should hire labor for 90 hours since the marginal revenue product equals the wage rate at this point. Beyond this point, it becomes less profitable for the factory to hire additional labor as the marginal revenue product falls below the wage rate.

Suppose the Marginal Physical Product of Labor at a Shoe