Question

Use the table to determine how many workers the firm will employ when the cost per good is $6
, and the wage rate is $25
.

Labor Input and Marginal Analysis for Employment Decision
Labor Input (Workers) Total Product Marginal Product of Labor Marginal Revenue Product of Labor (per hour) Marginal Cost of Labor (per hour)
0 0 - - -
1 7 7 $42 $25
2 16 9 $54 $25
3 24 8 $48 $25
4 28 4 $24 $25
5 30 2 $12 $25

five workers

three workers

two workers

four workers

Answer 1

Three workers.

Explanation: hire workers up to the point where marginal revenue product (MRP) ≥ wage. MRPs are $42, $54, $48, $24, $12 — the first three exceed the $25 wage, the fourth ($24) is below it, so the firm hires 3 workers.