A manager of a firm with market power faces the marginal revenue product and average revenue product curves shown below.The firm incurs weekly fixed costs of $1,800.The firm employs a single variable input,labor,which costs $600 per worker each week. Given the above,in order to maximize profit,the manager should hire ________ workers per week.

Question

A manager of a firm with market power faces the marginal revenue product and average revenue product curves shown below.The firm incurs weekly fixed costs of $1,800.The firm employs a single variable input,labor,which costs $600 per worker each week.  Given the above,in order to maximize profit,the manager should hire ________ workers per week.

Quizplus · Accepted Answer

The profit-maximizing level of employment occurs where the marginal revenue product (MRP) equals the wage rate. Looking at the graph, we can see that the MRP curve intersects with the wage rate ($600) at 12 workers. At this level of employment, the firm will produce where MRP = MC (marginal cost), which is at a quantity of 9. At this level of output, the firm's average revenue product (ARP) is $700, which is greater than the wage rate. Therefore, the firm will continue to hire more workers until the MRP curve falls below the wage rate, which occurs after 12 workers. Therefore, the best choice is C)12.

A Manager of a Firm with Market Power Faces the Marginal