Question

Explain how a firm decides how many workers to hire. If the wage was constant at $25 per day, howmany workers should be hired? Explain how you got your answer.

Answer 1

Answer:

This is based on the micro-economics concept,

MRP=MRC

The principle states that in order to maximize profit a firm should employ the quantity of a resource at which its marginal revenue product (MRP) is equal to its marginal resource cost (MRC)

MRC is the wage rate in pure competition and in this case.

As each worker will bring in at least as much revenue as their wages cost. If the wage was $25, you would hire 4 workers. The MRC is 25 and MRP is 30, thus if a 5th worker would be hired, the amount paid would exceed the MRC, or what is coming in, thus you cannot increase to a fifth worker.