Answer: 3 units of labor
Explanation:
The marginal revenue product will be:
- 1 labor unit
Marginal product = 500
Marginal revenue product = 500 × 5 = 2500
- 2 labor unit
Marginal product = 400
Marginal revenue product = 400 × 5 = 2000
- 3 labor unit
Marginal product = 250
Marginal revenue product = 250 × 5 = 1250
- 4 labor unit
Marginal product = 200
Marginal revenue product = 200 × 5 = 1000
- 5 labor unit
Marginal product = 200
Marginal revenue product = 200 × 5 = 1000
Therefore, till the third unit of labor, we can infer that the marginal revenue product is more than the marginal revenue cost. The 4th and 5th unit of labor will become costly to hire more labor.
