High Tech, Inc. produces plastic chairs that sell for $15 each. The following table provides information...

High Tech, Inc. produces plastic chairs that sell for $15 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 $50?

Select one:

a. 2

b. 4

c. 3

d. 5

Solutions

Expert Solution

Number of Workers	Total Product	Marginal Product	Marginal Revenue Product		Wage
0	0	--	--		--
1	10	10	150	>	50
2	18	8	120	>	50
3	24	6	90	>	50
4	28	4	60	>	50
5	30	2	30	<	50

Marginal Product = Change in Total Product / Change in Workers

Marginal Revenue Product = Marginal Product x Price of Product

Marginal revenue product refers to additional revenue generated by hiring additional workers.

A firm should hire workers until the marginal revenue product is equal to the wage rate.

If marginal revenue product is more than the wage rate then means additional revenue is generated by hiring additional workers is more than the cost of hiring that worker which is a profit for a firm hence a firm should continue till marginal revenue product is equal to the wage rate.

So from the above table, the marginal revenue product is greater than the wage rate till 4 workers.

Hence the firm should hire 4 workers.

Option B is correct

Rahul Sunny answered 1 year ago

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