The following figure depicts the labor markets of two different firms.

-Refer to the figure above.Let the price of A's output be PA and the price of B's output be PB.If firm A hires 8 employees at a wage of $12 and firm B hires 2 employees at a wage of $18,what is the ratio PA/PB?

Question

The following figure depicts the labor markets of two different firms.
 
-Refer to the figure above.Let the price of A's output be PA and the price of B's output be PB.If firm A hires 8 employees at a wage of $12 and firm B hires 2 employees at a wage of $18,what is the ratio PA/PB?

Quizplus · Accepted Answer

At equilibrium, the marginal product of labor equals the wage rate in both firms.
For firm A, the wage rate is $12 and the marginal product of the eighth worker is worth $30, which is the market wage rate. Therefore, the price of A's output (PA) is 8*$30 = $240.
For firm B, the wage rate is $18 and the marginal product of the second worker is worth $30, which is the market wage rate. Therefore, the price of B's output (PB) is 2*$30 = $60.
Therefore, the ratio of PA to PB is $240/$60 = 4. Answer choice C is closest to 4, so it is the best choice.

The Following Figure Depicts the Labor Markets of Two Different