Question

Utilize the following information to answer the following question, which assumes perfectly competitive markets:

a. Wage (MFC): $40
b. Price of good sold (P): $2
c. Marginal physical product (MPP) from the 8th worker hired:


Should the firm increase the amount of workers hired?
a. Yes, due to the fact MRP>MFC. Therefore, a firm can maximize profits by hiring additional workers.
b. Yes, due to the fact MFC-MRP. Therefore profits can be increased by hiring additional workers.
c. No, the firm should hire exactly 8 workers because at that point MRP-MFC; which is the profit maximizing level of labor hired.
d. No, the firm should hire exactly 8 workers because at that point MRP>MFC; which is the proht maximizing level of labor hired.

Answer 1

To determine if the firm should hire more workers, we need to compare the marginal revenue product (MRP) of the eighth worker to the wage (MFC). Unfortunately, without the marginal physical product (MPP) of the eighth worker, we cannot provide a definitive answer.

Step-by-step explanation:

The core concept in this question pertains to the profit-maximizing level of employment for a firm in a perfectly competitive market. According to the principle that a firm should hire workers up to the point where the market wage (or marginal factor cost, MFC) equals the marginal revenue product (MRP), the decision to hire more workers depends on the MRP of the last worker hired. Since the wage (MFC) is $40 and the price of the good sold (P) is $2, we need to know the Marginal Physical Product (MPP) of the 8th worker to determine the MRP, which is calculated as MPP times P.

Given the MRP is equal to MPP times P, if MRP is greater than MFC ($40), then the firm should hire more workers as it increases profit. Conversely, if MRP is less than MFC, the firm should not hire more workers as it would not contribute to maximizing profits. Unfortunately, the MPP of the 8th worker isn't provided in the question, and therefore we cannot definitively answer whether the firm should hire more workers without that information.