Scenario: A small apple orchard operates in a perfectly competitive output market (the market for apples) and input or factor market (the market for apple pickers). The market price of apples is $1 per pound, and the market wage for apple pickers is $50 per day. See the following table.

-Refer to the scenario above.Now suppose that apple pickers have the same productivity as they did initially,but the price of apples rises to $1.25 per pound.The profit-maximizing number of workers the orchard should hire is ________.

Question

Scenario: A small apple orchard operates in a perfectly competitive output market (the market for apples) and input or factor market (the market for apple pickers). The market price of apples is $1 per pound, and the market wage for apple pickers is $50 per day. See the following table.
 
-Refer to the scenario above.Now suppose that apple pickers have the same productivity as they did initially,but the price of apples rises to $1.25 per pound.The profit-maximizing number of workers the orchard should hire is ________.

Quizplus · Accepted Answer

To maximize profit, the orchard will hire workers up to the point where the marginal revenue product (MRP) of labor equals the wage rate. Initially, when the market price of apples was $1, MRP was calculated as follows:

MP x P = MRP
10 x $1 = $10

So the orchard was willing to hire up to 10 workers, as the 11th worker would have a MRP of only $9, which is less than the wage rate of $50.

Now, with the higher market price of $1.25 per pound, the MRP of labor increases as well:

MP x P = MRP
10 x $1.25 = $12.50

So the orchard can afford to pay each worker up to $12.50 in MRP. Dividing that by the wage rate of $50 gives us the maximum number of workers the orchard should hire:

$12.50 / $50 = 0.25 workers

Therefore, the orchard should hire 11 workers (since it cannot hire a fraction of a worker), just as it did before.

Scenario: a Small Apple Orchard Operates in a Perfectly Competitive