Use the table to determine how many workers the firm will employ when the cost per good is $6

Question

, and the wage rate is $25
.

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


(1 point)
Responses

four workers
four workers

two workers
two workers

three workers
three workers

five workers
five workers

Answer 1

To determine how many workers the firm will employ when the cost per good is $6 and the wage rate is $25, we need to compare the Marginal Revenue Product of Labor (MRP) to the Marginal Cost of Labor (MCL). The firm will continue to hire workers until the MRP is equal to or just above the MCL.

Here's the breakdown with the given numbers:

1. Calculate MRP:
   • MRP = Marginal Product of Labor × Price per Good
   • Price per Good = $6

Now calculate MRP for each worker:

• For 1 worker: MRP = 7 (MP) × $6 = $42
• For 2 workers: MRP = 9 (MP) × $6 = $54
• For 3 workers: MRP = 8 (MP) × $6 = $48
• For 4 workers: MRP = 4 (MP) × $6 = $24
• For 5 workers: MRP = 2 (MP) × $6 = $12

2. Compare MRP to MCL:
   • MCL is constant at $25 per hour.

Now compare each MRP to $25:

• For 1 worker: MRP = $42 > $25 (hire)
• For 2 workers: MRP = $54 > $25 (hire)
• For 3 workers: MRP = $48 > $25 (hire)
• For 4 workers: MRP = $24 < $25 (do not hire)
• For 5 workers: MRP = $12 < $25 (do not hire)

Based on this analysis, the firm will employ 3 workers because the MRP for the third worker ($48) is greater than the MCL ($25), but the MRP for the fourth worker ($24) is less than the MCL.

The correct response is three workers.