You have been hired by a data processing firm to provide economic advice. The owner of the firm tells you that the firm's only variable input is the number of data-entry operators. The hourly wage for data-entry operators is $10.00. The marginal revenue product curve for data-entry operators reaches its maximum at three workers with a marginal revenue product of $12.00. What advice would you give this firm?
A) Hire three data-entry operators so as to maximize profits.
B) Shut down immediately, as the firm is not able to cover all of its variable costs.
C) Decrease the wage rate paid to data-entry operators so that their marginal revenue product will decrease.
D) Hire data-entry operators until the marginal revenue product is equal to the wage-which will occur when more than three operators are employed.

Question

Quizplus · Accepted Answer

The firm should continue to hire data-entry operators until the marginal revenue product (MRP) equals the wage rate. Since the MRP is $12 at three workers and the wage is $10, hiring more workers until MRP equals the wage will maximize profits.

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