Hershey Chocolate Factory pays a money wage rate equal to $30 per hour and sells its candy bars for $1.50 each.Hershey Chocolate Factory should hire labor until an additional unit of labor produces ________ candy bars an hour.

Question

Quizplus · Accepted Answer

To maximize profit, Hershey Chocolate Factory should hire labor until the marginal revenue product (MRP) of labor is equal to the wage rate.

MRP of labor = Marginal product of labor (MPL) x Price
Given that the factory sells each candy bar for $1.50, the MRP equation becomes: 
MRP of labor = MPL x $1.50

Assuming diminishing marginal returns, each additional unit of labor will produce fewer candy bars than the previous unit. Therefore, MPL will decrease as more labor is hired.

To determine the optimal level of labor, we need to find the point at which the MRP of labor is equal to the wage rate of $30 per hour.

Setting MRP of labor = $30, we have: 
MPL x $1.50 = $30
MPL = 20

Therefore, Hershey Chocolate Factory should hire labor until an additional unit of labor produces 20 candy bars per hour. Choice (C) is the correct answer.

Hershey Chocolate Factory Pays a Money Wage Rate Equal to $30