Question

High Tech, Inc. produces plastic chairs that sell for $10 each. The following table provides information about how many plastic chairs can be produced per hour.

Number of Workers	Chairs Produced Per Hour
0	0
1	10
2	18
3	24
4	28
5	30

For simplicity, assume that labor is the only input. How many workers will be hired if the hourly wage for workers is $70?

Multiple Choice

• 2

• 3

• 1

• 4

Answer 1

A firm should hire workers up to the point where marginal revenue product is greater or equivalent to wages of the worker.

To find the marginal revenue product we will multiply the price of each chair which is $10 by the marginal product.

Marginal product is the additional output which extra worker produces. So, we can get it by subtracting total chairs produced when one additional worker was hired. After calculating MP and MRP, we will get the below table,

In the above table, we can see that when a firm hires 3 or more workers marginal revenue product is less than the hourly wage per worker. So, we can conclude that it is viable for the firm to hire only 2 workers as at this level MRP($80) > Wages ($70).

Hence, the correct answer is the first option i.e. 2 workers.