Table 18-4
Consider the following daily production data for Wills Golf Balls.Wills sells golf balls for $2.50 cents each and pays the workers a wage of $325 per day.

-For maximum profit,a firm hires labor up to the point at which the wage equals

Question

Table 18-4
Consider the following daily production data for Wills Golf Balls.Wills sells golf balls for $2.50 cents each and pays the workers a wage of $325 per day.
 
-For maximum profit,a firm hires labor up to the point at which the wage equals

Quizplus · Accepted Answer

To maximize profit, the firm needs to hire labor up to the point where the marginal revenue product (MRP) of labor (which is the additional revenue generated by each additional unit of labor) equals the wage rate. 
(i) Looking at Table 18-4, the MRP for the 7th worker is $355, which is greater than the wage ($325). Therefore, hiring the 7th worker would increase profit.
(ii) The MRP for the 8th worker is $335, which is less than the wage ($325). Therefore, hiring another worker beyond the 7th would decrease profit.
(iii) To confirm the above, we can calculate the total revenue, total cost, and profit for each level of labor input. In Table 18-4, we can see that the profit-maximizing level of labor input is 7 workers, which results in a profit of $952. Hiring fewer or more workers would decrease profit.

Table 18-4 Consider the Following Daily Production Data for Wills Golf Balls.Wills