When firm A hires one worker it pays $10 an hour and its total labor cost is $10. When it hires a second worker, it has to pay $11 to each of its two workers and its total labor cost is $22. When it hires a third worker, it has to pay $12 to each of its three workers and its total labor cost is $36. For firm A,
A)its marginal factor cost is greater than the wage rate it pays, except for the first worker it hires.
B)its marginal factor cost is greater than the wage rate it pays, except for the first two workers it hires.
C)its supply curve of labor lies above its marginal factor cost curve.
D)it is likely that marginal revenue product is always greater than marginal factor cost.

Question

Quizplus · Accepted Answer

The marginal factor cost (MFC) is the additional cost of hiring one more worker. For the second worker, MFC is $12 ($22 - $10), and for the third worker, MFC is $14 ($36 - $22). These are greater than the wage rates of $11 and $12, respectively, indicating that MFC is greater than the wage rate except for the first worker.

When Firm a Hires One Worker It Pays $10 an Hour