Suppose that a profit-maximizing firm in a competitive market hires labor up to the point at which the value of the marginal product equals the wage and that labor is the only variable input.The price of the product is $150 per unit.If the firm pays a wage of $700 per week and the marginal product of labor equals 20 units per week,then the marginal cost of producing an additional unit of output is
A) $35.
B) $70.
C) $14,000 divided by total output.
D) $3,000 divided by total output.
E) $4.29.

Question

Quizplus · Accepted Answer

Marginal Cost (MC) = Wage / Marginal Product of Labor (MPL)
MC = $700 / 20 = $35 per unit
Since the price of the product is $150 per unit, the firm earns a profit of $150 - $35 = $115 per unit. Therefore, the firm will continue to produce units as long as the marginal cost ($35) is less than the price of the product ($150). Hence, the best choice is B.

Suppose That a Profit-Maximizing Firm in a Competitive Market Hires