Question

(05.03 MC) Graph has Quantity on the horizontal axis and Wage on the vertical axis. A flat horizontal line is labeled MRC and is at vertical axis value 60. A curved line is labeled MRP. MRP starts on the vertical axis higher than MRC, rises to the quantity 1, then slopes downward, intersecting MRC at quantity 7. How much should the profit-maximizing firm above pay in total labor costs when hiring the profit-maximizing quantity of labor? Less than $60 $60 $360 $420 More than $420

Answer 1

The scenario described here involves a profit-maximizing firm that is hiring labor. The firm needs to balance the marginal revenue product (MRP) of labor with the marginal cost of labor (MRC) to determine the optimal quantity of labor to hire.

Step-by-step explanation:

In this case, the MRC is a flat horizontal line at a value of $60, and the MRP curve starts above the MRC, rises to a certain point, and then intersects the MRC curve. The MRP curve intersects the MRC curve at a quantity of 7.

To find out how much the firm should pay in total labor costs when hiring the profit-maximizing quantity of labor, we need to determine the wage level at which the MRP and MRC curves intersect. Since the MRC curve is at $60 and the intersection point is at a quantity of 7, we can read the corresponding wage level from the MRP curve at that quantity (7).

If the MRP curve starts above the MRC curve and intersects at a quantity of 7, it implies that the MRP curve is declining beyond that point. We can infer that the wage level at quantity 7 (where MRP = MRC) is above $60. Therefore, the correct answer is "More than $420."