Exhibit 11-1 Use the information in the accompanying chart to answer the following question(s). The firm hires labor competitively and sells its product in a competitive price-taker market.

Refer to Exhibit 11-1. If the market wage rate is $25 per day, how many workers should the firm hire if it wants to maximize profits?

Question

Exhibit 11-1 Use the information in the accompanying chart to answer the following question(s). The firm hires labor competitively and sells its product in a competitive price-taker market.

Refer to Exhibit 11-1. If the market wage rate is $25 per day, how many workers should the firm hire if it wants to maximize profits?

Quizplus · Accepted Answer

To maximize profits, the firm should hire workers up to the point where the marginal revenue product of labor (MRPL) equals the market wage rate. At a market wage rate of $25, the MRPL is highest for the 6th worker at $30. Therefore, the firm should hire 6 workers to maximize profits. Hiring fewer than 6 workers would mean that the MRPL of the last worker hired is greater than the wage rate, so the firm could increase profits by hiring one more worker. Hiring more than 6 workers would mean that the MRPL of the last worker hired is less than the wage rate, so the firm could increase profits by reducing the number of workers employed.

Exhibit 11-1 Use the Information in the Accompanying Chart to Answer