A farmer who has fixed amounts of land and capital finds that total product is 24 for the first worker hired, 32 when two workers are hired, 37 when three are hired, and 40 when four are hired. The farmer's product sells for $3 per unit, and the wage rate is $13 per worker. How many workers should the farmer hire?
A)$1
B)$2
C)$4
D)$3

Question

Quizplus · Accepted Answer

The farmer should hire workers until the marginal product of labor times the price of the product equals the wage rate. The marginal product of the fourth worker is 3 (40-37), and the revenue from this is 3 * $3 = $9, which is less than the wage rate of $13. Therefore, the farmer should hire 3 workers, where the marginal product times the price ($15) is greater than the wage rate.

A Farmer Who Has Fixed Amounts of Land and Capital