The following table shows the marginal revenue of a firm and the marginal physical product of different units of labor in a perfectly competitive labor market.Table 14.5
Note: Marginal revenue product of a resource is the product of MPP and MR.
-In Table 14.5, if the wage rate is $10, how many workers will be employed by a profit-maximizing firm ?
A)1
B)2
C)3
D)4

Question

The following table shows the marginal revenue of a firm and the marginal physical product of different units of labor in a perfectly competitive labor market.Table 14.5
Note: Marginal revenue product of a resource is the product of MPP and MR. 
-In Table 14.5, if the wage rate is $10, how many workers will be employed by a profit-maximizing firm ?
A)1 
B)2 
C)3 
D)4

Quizplus · Accepted Answer

To determine the profit-maximizing number of workers, we need to compare the marginal revenue product (MRP) to the wage rate. For the first worker, the MRP exceeds the wage rate, so the firm will hire one worker. For the second worker, the MRP is still higher than the wage rate, so the firm will hire a second worker. For the third worker, the MRP ($24) is less than the wage rate ($30), so the firm will not hire a third worker. Therefore, the profit-maximizing number of workers is 2.

The Following Table Shows the Marginal Revenue of a Firm