Question

"A soybean farmer sells soybeans in a perfectly competitive market and hires labor in a perfectly competitive market. The market price of soybeans is $6 a bushel, the wage rate is $30, the farmer employs eight workers and the marginal product of the eighth worker is 4 bushels. What would you advise this farmer to do?"

Answer 1

Reduce employment because the wage paid is more than the marginal revenue product.

Step-by-step explanation:

If the wage rate is $30, then the marginal cost for the eight worker is $30.

The marginal revenue product of the eight worker is given by the marginal product multiplied by the price per bushel:

`MR = 4\ bushels*(\$6)/(bushel)\\MR=\$24`

Since the marginal revenue product of the eight worker is less than the marginal cost (MR < MC), the farmer should reduce employment.