Companies can rent a manufacturing robot named RoboMan for $2,500 a month and must pay workers $20 an hour.The value of the marginal product of RoboMan is $5,000,and the value of the marginal product of labor is $20.Companies should hire ________ RoboMen and ________ workers.
A) more; fewer
B) more; more
C) fewer; fewer
D) fewer; more
E) the same amount of; more

Question

Quizplus · Accepted Answer

The value of the marginal product of RoboMan is higher than the cost of renting it ($5,000 > $2,500), indicating that using more robots will increase profits. On the other hand, the value of the marginal product of labor is equal to the wage paid, which means that hiring additional workers will not increase profits (due to diminishing returns to labor). Therefore, companies should hire more RoboMen and fewer workers.

Companies Can Rent a Manufacturing Robot Named RoboMan for $2,500