Answer the question on the basis of the following marginal product data for resources a and b.The output of these independent resources sells in a purely competitive market at $1 per unit. $\begin{array}{ccc}
\begin{array}{ccc}
\text { Inputs } \
\text { of a } & & \mathrm{MP}_{\mathrm{a}} \
\hline
1 & & 25 \
2 & & 20 \
3 & & 15 \
4 & & 10 \
5 & & 5 \
6 & & 2 \
7 & & 1
\end{array}
\begin{array}{c}
\begin{array}{c}
\text { Inputs } \
\text { of } b
\end{array} & & M P_{b} \
\hline
1 & & 40 \
2 & & 36 \
3 & & 32 \
4 & & 24 \
5 & & 20 \
6 & & 16 \
7 & & 8
\end{array}
\end{array}$ Refer to the given data.Assume now that the prices of a and b are $15 and $20 respectively.To maximize profits,what combination of a and b should the employer hire?
A) 3 of a and 5 of b.
B) 5 of a and 7 of b.
C) 7 of a and 7 of b.
D) 6 of a and 2 of b.

Question

Quizplus · Accepted Answer

To maximize profits, the employer should hire resources up to the point where the value of the marginal product (VMP) equals the resource price. VMP is calculated as MP * price of output. For resource a, the VMP at 3 units is $15 (15 * $1), equal to its price. For resource b, the VMP at 5 units is $20 (20 * $1), equal to its price.

Answer the Question on the Basis of the Following Marginal