Answer the question on the basis of the following information.A farmer who has fixed amounts of land and capital finds that total product is 24 for the first worker hired;32 when two workers are hired;37 when three are hired;and 40 when four are hired.The farmer's product sells for $3 per unit and the wage rate is $13 per worker. Refer to the given information.What is the farmer's profit-maximizing output?
A) 20.
B) 32.
C) 37.
D) 40.

Question

Quizplus · Accepted Answer

The farmer should hire workers until the marginal product of labor times the price of the product equals the wage rate. The marginal product of the third worker is 5 (37-32), and the revenue from this is 5 * $3 = $15, which is greater than the wage rate of $13. Hiring the fourth worker adds only 3 units (40-37), generating $9, which is less than the wage rate. Thus, the profit-maximizing output is 37.

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