The Grungo Company has the following production function:
$$\begin{array} { c c }
\begin{array} { c }
\text { Number of } \
\text { Workers }
\end{array} & \begin{array} { c }
\text { Number of } \
\text { Grungos Produced }
\end{array} \
\hline 0 & 0 \
1 & 10 \
2 & 19 \
3 & 26 \
4 & 31 \
5 & 34
\end{array}$$
If the real wage rate is 6,how many workers will the company hire?
A)0
B)1
C)3
D)5

Question

The Grungo Company has the following production function:
$$\begin{array} { c c } 
\begin{array} { c } 
\text { Number of } \
\text { Workers }
\end{array} & \begin{array} { c } 
\text { Number of } \
\text { Grungos Produced }
\end{array} \
\hline 0 & 0 \
1 & 10 \
2 & 19 \
3 & 26 \
4 & 31 \
5 & 34
\end{array}$$
If the real wage rate is 6,how many workers will the company hire?
A)0
B)1
C)3
D)5

Quizplus · Accepted Answer

The marginal product of labor (MPL) can be calculated by finding the difference between the number of Grungos produced for each pair of consecutive levels of employment. For example, MPL between 1 and 0 workers is 10 - 0 = 10, while MPL between 2 and 1 workers is 19 - 10 = 9. 
$$\begin{array} { c c c } 
\text {Number of} & \text {Number of} & \text {MPL} \
\text {Workers (L)} & \text {Grungos (Q)} &  
\end{array}$$
$$\begin{array} { c c c } 
0 & 0 & \
1 & 10 & 10\
2 & 19 & 9\
3 & 26 & 7\
4 & 31 & 5\
5 & 34 & 3\
\end{array}$$
At a wage rate of 6, the company will hire workers up to the point where the value of their marginal product (extra output they generate) equals their wage rate. So, we need to find the worker level at which MPL = 6. This occurs at 3 workers, where MPL = 7. At 4 workers, MPL falls to 5, which is less than the wage rate, so hiring more workers would result in a lower profit. Therefore, the optimal choice is to hire 3 workers.

The Grungo Company Has the Following Production Function If the Real Wage Rate Is 6,how Many Workers Will