Question

   Number of Workers      Output per Hour     

          0                                                       0                     

          1                                                       7                       

          2                                       12                      

          3                                       15                      

          4                                       17                       

          5                                       18                      

  

According to the table above, if the product price is $5 and the wage rate is $10 per hour, how many workers should this firm hire?

a. 3

b. 5

c. 4

d. 1

e. 2

Answer 1

Option c

4 workers

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MP(n)=(TP(n)-TP(p))/(n-p)
MP(n)=marginal product of n th unit of input
TP(n)= total product of n inputs
TP(p)=total product of p inputs
it is true for n>p

MP(1)=(7-0)/(1-0)=7

MP(2)=(12-7)/(2-1)=5 and so on

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MRP=MP*Price

MRP=7*5=$35

MRP=5*5=$25 and so on

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W	Output	MP	MRP
0	0
1	7	7	35
2	12	5	25
3	15	3	15
4	17	2	10
5	18	1	5

the firm maximizes profit at MRP=wage or the nearest lower wage

The MRP=wage=$10 at workers =4

the firm hires 4 workers to maximize profit