The following table shows the total output produced by different units of a resource.Assume that the resource and output markets are both perfectly competitive.The equilibrium price of the resource is $15.00, and the equilibrium price of the product is $0.50. Table 28.2
Marginal revenue product (MRP)of a resource is the product of the marginal product of the resource and the marginal revenue.
Refer to Table 28.2.How many units of the resource will a profit-maximizing firm hire?

Question

The following table shows the total output produced by different units of a resource.Assume that the resource and output markets are both perfectly competitive.The equilibrium price of the resource is $15.00, and the equilibrium price of the product is $0.50. Table 28.2
 Marginal revenue product (MRP)of a resource is the product of the marginal product of the resource and the marginal revenue.
Refer to Table 28.2.How many units of the resource will a profit-maximizing firm hire?

Quizplus · Accepted Answer

To determine how many units of the resource a profit-maximizing firm will hire, we need to look at the marginal revenue product (MRP) of the resource. MRP is the product of the marginal product of the resource and the marginal revenue.

In Table 28.2, we can see that the marginal product of the resource (labor) decreases as more units of the resource are hired. However, the marginal revenue stays constant at $0.50.

To calculate the MRP, we need to multiply the marginal product by the marginal revenue. For example, at 3 units of labor, the marginal product is 9 and the marginal revenue is $0.50. Therefore, the MRP is 9 x $0.50 = $4.50.

We can see from the table that the MRP is highest at 3 units of labor, where it is $4.50. Therefore, a profit-maximizing firm would hire between three and four labor hours.

The Following Table Shows the Total Output Produced by Different