Question

Assume we have a firm's per-day production data: one person can produce 8 units, 2 people can produce 15 units, 3 people can produce 18 units, and 4 people can produce 20 units. If the per-unit price of the good produced is $5 and daily per-person wages are $27, how many people should the firm hire?

Answer 1

1 person.

Step-by-step explanation:

For one person;

Wage =$27

Total Cost of units = 8×5 = $40

Per unit profit = (40-27)/8 = $1.625 per unit

For two people;

Wage =$27 × 2 = $54

Total Cost of units = 15×5 = $75

Per unit profit = (75-54)/15 = $1.4 per unit

For three people;

Wage =$27 × 3 = $81

Total Cost of units = 18×5 = $90

Per unit profit = (90-81)/18 = $0.5 per unit

For four people;

Wage =$27 × 4 = $108

Total Cost of units = 20×5 = $100

Per unit profit = (100-108)/20 = -$0.4 per unit

Therefore, for the four cases the maximum profit per unit is $1.625, with one person. And since there is no production limits (minimum). So, the firm should hire 1 person.