Suppose a competitive firm pays a wage of $12 an hour and sells its product at $3 per unit.Assume that labor is the only input.If hiring another worker would increase output by five units per hour, then to maximize profits the firm should

Question

Quizplus · Accepted Answer

Hiring the additional worker will increase the output by five units per hour. The additional revenue from selling these additional units is:

Additional revenue = 5 x $3 = $15

The cost of the additional worker is $12 per hour, so the additional cost is:

Additional cost = $12

Therefore, hiring the additional worker will increase profits by $3 per hour ($15 - $12). Therefore, it is the most profitable choice to hire the additional worker.

Suppose a Competitive Firm Pays a Wage of $12 an Hour