Question

Number of Employees Total Production Marginal Product of Labor Marginal Revenue Product 0 0 0 1 18 18 2 30 12 3 41 11 4 46 5 If the price of the item is $10.00 per unit and the employees cost $100 each, how many employees should the firm hire to maximize their profit

Answer 1

3 workers

Step-by-step explanation:

Number of Total Production Marg. Product Marg. Revenue

employees of Labor Product

0 0 0 0

1 18 18 $180

2 30 12 $120

3 41 11 $110

4 46 5 $50

in order to maximize profits, the company must produce until the marginal revenue product ≥ cost of hiring an additional worker. In this case, the company should hire 3 workers since the MRP ($110) ≥ $100.