Prairie Cabinets produces and sells custom kitchen cabinets.The firm has determined that if it hires 10 workers,it can produce 10 sets of cabinets per day.If it hires 11 workers,it can produce 12 sets of cabinets per day.It sells each set of cabinets for $2,000,and it pays each of its workers $200 per day.Which of the following is correct?

Question

Quizplus · Accepted Answer

To calculate the value of the marginal product of labor, we need to find the additional output produced by the 11th worker. 
With 10 workers, the firm produces 10 sets of cabinets per day. 
With 11 workers, the firm produces 12 sets of cabinets per day. 
So, the additional output produced by the 11th worker is 2 sets of cabinets. 
Therefore, the value of the marginal product of labor for the 11th worker is:
2 x $2,000 = $4,000
This is greater than the wage rate of $200 per day, so hiring the 11th worker would increase the firm's profit.

Prairie Cabinets Produces and Sells Custom Kitchen Cabinets