Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3 per unit.Assume that labour is the only input.If the last worker hired increases output by three units per hour, then to maximise profits the firm should
A)not change the number of workers it currently hires.
B)lay off some of its workers.
C)hire additional workers.
D)There is not enough information to answer the question.

Question

Quizplus · Accepted Answer

The marginal revenue product (MRP) of the last worker is $9 (3 units x $3 per unit), which is less than the wage of $12. Therefore, the firm should lay off some workers to maximize profits.

Suppose a Competitive Firm Is Paying a Wage of $12