Suppose the output of a firm hiring workers in a competitive labor market increases by three units when an additional worker is hired

Economics Dec 18, 2020

Suppose the output of a firm hiring workers in a competitive labor market increases by three units when an additional worker is hired. True or False: this firm will hire more laborers if the market price of its product is $4 and the wage rate is $9.

Expert Solution

True.

The marginal revenue product of an additional laborer = marginal product of labor x market price of product = 3 x 4 = $12 dollars, and the marginal cost of an additional laborer = wage = $9. Since marginal revenue product exceeds marginal cost, the firm should hire more laborers.

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote