A firm currently has 5 workers each paid $15 per hour.If it decides to hire a 6th worker,the hourly wage increases to $18 for all workers.The 6th worker is expected to contribute to around $40 worth of output.Based on this information,the firm should A)Hire the 6th worker since MRMC B)Not hire the 6th worker since MRMC C)Not hire the workers since MR

Question

A firm currently has 5 workers each paid $15 per hour.If it decides to hire a 6th worker,the hourly wage increases to $18 for all workers.The 6th worker is expected to contribute to around $40 worth of output.Based on this information,the firm should
A)Hire the 6th worker since MR>MC
B)Not hire the 6th worker since MR>MC
C)Not hire the workers since MR<MC
D)Need more information

Quizplus · Accepted Answer

For the first 5 workers, the cost per hour is $15 per hour. However, with the addition of the 6th worker, the cost increases to $18 per hour for all workers. This means that the marginal cost (MC) of the 6th worker is $18 per hour.

To determine if the firm should hire the 6th worker, we need to compare the marginal revenue (MR) that the 6th worker is expected to bring in with the marginal cost (MC) of hiring the worker.

Based on the information given, the 6th worker is expected to contribute around $40 worth of output. This means that the marginal revenue (MR) of hiring the 6th worker is $40.

Since MR ($40) is greater than MC ($18), the firm should hire the 6th worker. The additional revenue generated by the 6th worker ($40) exceeds the additional cost of hiring the worker ($18), so the decision to hire the worker will increase profits for the firm.

A Firm Currently Has 5 Workers Each Paid $15 Per