Table 18-2
The following table shows the production function for a particular business.The numbers represent the various labor and output combinations the firm may choose for its output on a daily basis.

-Refer to Table 18-2.Suppose this firm charges a price of $5 per unit of output and pays workers a wage equal to $160 per day.How many workers should this firm hire to maximize its profit?

Question

Table 18-2
The following table shows the production function for a particular business.The numbers represent the various labor and output combinations the firm may choose for its output on a daily basis.
 
-Refer to Table 18-2.Suppose this firm charges a price of $5 per unit of output and pays workers a wage equal to $160 per day.How many workers should this firm hire to maximize its profit?

Quizplus · Accepted Answer

To maximize profit, the firm should hire workers until the marginal product of labor (MPL) equals the wage rate divided by the price (w/P). 
In this case, the wage rate is $160 and the price is $5, so w/P = 160/5 = 32. 
We can see from the table that the MPL is highest for the 4th worker, at 40 units of output. Therefore, the firm should hire 4 workers to maximize its profit.

Table 18-2 The Following Table Shows the Production Function for a Particular