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

Answer:

3 workers

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.