Suppose that production at a firm occurs according to the following schedule. If the wage per unit of labor is $765 and the price of output is $5 per unit,then the optimal amount of labor to hire is

Question

Suppose that production at a firm occurs according to the following schedule.  If the wage per unit of labor is $765 and the price of output is $5 per unit,then the optimal amount of labor to hire is

Quizplus · Accepted Answer

The optimal amount of labor to hire is the point at which the marginal revenue product of labor (MRP) equals the wage rate. From the schedule given, the MRP of the first three units of labor are $10, $20, and $27, respectively. The MRP of the fourth unit of labor is $30, which is greater than the wage rate of $765. This means that it is optimal for the firm to hire the first three units of labor, but not the fourth unit. Therefore, the optimal amount of labor to hire is between three and four, which is choice C.

Suppose That Production at a Firm Occurs According to the Following