The table below shows the total production for varying numbers of hours worked producing yo-yos.The firm sells its product and hires its workers in competitive markets.
TABLE 13-4
-Refer to Table 13-4.Which of the following statements best describes the situation of this firm when it is employing 15 hours of labour? The 15th hour of labour hired
A)adds $5 to revenue,but costs $10 to hire,so this firm should hire less labour.
B)adds $20 to revenue,but only costs $10 to hire,so this firm should hire more labour.
C)adds $10 to revenue and costs $10 to hire,so this firm is maximizing its profit at 15 hours of labour.
D)adds $50 to revenue,but only costs $10 to hire,so this firm should hire more labour.
E)adds $2 to revenue,but costs $10 to hire,so this firm should hire less labour.

Question

The table below shows the total production for varying numbers of hours worked producing yo-yos.The firm sells its product and hires its workers in competitive markets.
  TABLE 13-4
-Refer to Table 13-4.Which of the following statements best describes the situation of this firm when it is employing 15 hours of labour? The 15th hour of labour hired
A)adds $5 to revenue,but costs $10 to hire,so this firm should hire less labour. 
B)adds $20 to revenue,but only costs $10 to hire,so this firm should hire more labour. 
C)adds $10 to revenue and costs $10 to hire,so this firm is maximizing its profit at 15 hours of labour. 
D)adds $50 to revenue,but only costs $10 to hire,so this firm should hire more labour. 
E)adds $2 to revenue,but costs $10 to hire,so this firm should hire less labour.

Quizplus · Accepted Answer

When the firm hires its first 14 hours of labour, each additional hour of labour adds $10 to the cost and generates $10 of additional revenue. However, when the 15th hour of labour is hired, it adds $10 to the cost but generates $20 of additional revenue. This implies that the marginal revenue product (MRP) of labour is 20 - 10 = $10. Since the wage rate is $10 per hour, the firm is maximizing its profit at 15 hours of labour, where the MRP equals the wage rate. Therefore, choice C is the best answer.

The Table Below Shows the Total Production for Varying Numbers