Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3 per unit.Assume that labor is the only input.If the last worker hired increases output by three units per hour, then to maximize profits the firm should
A)not change the number of workers it currently hires.
B)lay off one or more of its workers.
C)hire additional workers.
D)There is not enough information to answer the question.

Question

Quizplus · Accepted Answer

The marginal revenue product of the last worker is $9 (3 units x $3 per unit), which is less than the wage of $12. Therefore, the firm should lay off workers to maximize profits.

Suppose a Competitive Firm Is Paying a Wage of $12