Table 12-3
Refer to Table 12-3. Suppose that the firm pays its workers $55 per day. Each unit of output sells for $12. How many days of labor should the firm hire?
A) 3
B) 4
C) 5
D) 6

Question

Table 12-3
 Refer to Table 12-3. Suppose that the firm pays its workers $55 per day. Each unit of output sells for $12. How many days of labor should the firm hire?
A) 3 
B) 4 
C) 5 
D) 6

Quizplus · Accepted Answer

To determine the best number of days to hire labor, we need to look at the marginal product of labor (MPL) and the marginal revenue product of labor (MRP). From the table, we can see that at 3, MPL is equal to MRP, meaning that the additional revenue generated by hiring an additional worker is equal to the additional cost (wages). However, at 4 days of labor, MRP is greater than MPL, indicating that hiring an additional worker would generate more revenue than the cost of their wages. Therefore, hiring 4 days of labor is the best choice. Beyond 4 days, however, MRP begins to decrease, meaning that hiring additional labor would cost more than the revenue they generate, making 4 days the optimal choice.

Table 12-3 Refer to Table 12-3. Suppose That the Firm Pays