Use the information in the table below to answer the following question(s). The firm hires labor competitively and sells its product in a competitive price-taker market.
Table 12-6

Refer to Table 12-6. If the market wage rate is $25 per day, how many workers should the firm hire if it wants to maximize profits?
A) 4
B) 5
C) 6
D) 7

Question

Use the information in the table below to answer the following question(s). The firm hires labor competitively and sells its product in a competitive price-taker market.
Table 12-6

Refer to Table 12-6. If the market wage rate is $25 per day, how many workers should the firm hire if it wants to maximize profits?
A) 4 
B) 5 
C) 6 
D) 7

Quizplus · Accepted Answer

To maximize profits, the firm should hire workers until the point where the marginal revenue product (MRP) of labor equals the wage rate. In this case, at a wage rate of $25 per day, the MRP for the 5th worker is $25. Therefore, hiring the 5th worker will maximize profits as the MRP for any additional worker is less than the wage rate. Thus, the firm should hire 6 workers because at least 5 workers are required for producing 25 units of output.

Use the Information in the Table Below to Answer the Following