Question

"A wheat farmer sells wheat in a perfectly competitive market and hires labor in a perfectly competitive market. The market price of wheat is $2 a bushel, the wage rate is $10, the farmer employs five workers and the marginal product of the fifth worker is 10 bushels. What would you advise this farmer to do?"

Answer 1

employment

Step-by-step explanation:

• the wage rate is $10 => the marginal cost for the five worker is $30

Given:

Price per bushel : $2

Number of bushels: 5

• The marginal revenue product of the five worker is:

Number of bushels * Price per bushel

= 5*2

= 10

Because the marginal cost > marginal revenue or (MC> MR) so the farmer should reduce the employment

Hope it will find you well.

Answer 2

Since MRP > wage, I would advise the farmer to increase employment because the wage paid is less than the marginal revenue product.

Step-by-step explanation:

From the information provided:

Price of wheat = $2

Wage rate = $10

Marginal product of the fifth worker = 10 bushels of wheat.

Profit maximizing condition under perfectly competitive labor market is when MRP = wage.

Marginal revenue product is given by:

= (P)(MP)

= (2)(10)

= $20

Therefore, Since MRP > wage, I would advise the farmer to increase employment because the wage paid is less than the marginal revenue product.