Question

A profit-maximizing firm operates in purely competitive product and resource markets, with the following resource and production schedules.

WorkersTotal Production 100 190 270 340 400 450 490 520 4 6

The product price is $10 per unit and the cost per worker is $600.

How many workers will the firm employ?

a) 4

b) 5

c) 6

d) 7

Answer 1

b) 5

Workers Total Production

1 100

2 190

3 270

4 340

5 400

6 450

7 490

8 520

Step-by-step explanation:

Profit is maximized when marginal cost is equal to marginal revenue.

i.e MC=MR.

Workers Total Production TC MC TR MR

$ $ $ $

1 100 600 - 1000 -

2 190 1200 600 1900 900

3 270 1800 600 2700 800

4 340 2400 600 3400 700

5 400 3000 600 4000 600

6 450 3600 600 4500 500

7 490 4200 600 4900 400

8 520 4800 600 5200 300

Where TC=Total Cost=worker multiply by cost per worker=$600*1=$600; etc.

MC=Marginal Cost=TC minus preceding TC=$600.

TR=Total Revenue=Total Production multiply by production price=$100*$10=$1,000, etc.

MR=Marginal Revenue=TR minus preceding TR=$1900-$1,000=$900, etc.

Answer 2

b) 5

Step-by-step explanation:

W TP MP MRP

1 100

2 190 90 900

3 270 80 800

4 340 70 700

5 400 60 600

6 450 50 500

7 490 40 400

8 520 30 300

the marginal product of n labor = (total product of n labor - the total product of p labor)/(n-p)............(n>p)

Marginal revenue product = marginal product*price

the firm employ input up to marginal revenue product equal to the wage

MRP = wage or closest lower wage

where W = 5

the firm will higher 5 workers.