Tucker Corporation sells its product for $5.00. Tucker's industrial engineers have informed management that hiring one additional worker will increase output by five units per hour. Tucker should hire the additional worker only if the wage rate is:

Question

Quizplus · Accepted Answer

Hiring an additional worker will increase output by 5 units per hour, which means that the cost of producing each unit will decrease by the additional worker's hourly wage rate divided by 5.

For example, if the hourly wage rate is $5.00, then the cost of producing each unit will decrease by $1.00 ($5.00/5 units = $1.00 per unit). This means that the new cost per unit will be $4.00 ($5.00 - $1.00 = $4.00).

If the wage rate is less than $5.00, the cost per unit will decrease even more, making it more profitable for Tucker to hire the additional worker. Therefore, choice (A) is not the best choice.

If the wage rate is $1.00 or more, then the cost per unit will decrease by less than $1.00, making it less profitable for Tucker to hire the additional worker. Therefore, choice (B) is not the best choice.

If the wage rate is more than $25.00, then the cost per unit will actually increase because the additional worker's wage rate per unit produced will be higher than the selling price of the product. Therefore, choice (D) is not the best choice.

The best choice is therefore (C), where the wage rate is $25.00 or less per hour, because the cost per unit will decrease by an amount that is greater than the additional wage cost per unit produced.

Tucker Corporation Sells Its Product for $5