Question

A perfectly competitive firm is currently producing at the profit-maximizing output level. If the marginal physical product of labor is 10 units per hour and the firm pays a wage rate of $8 per hour, which of the following is trueA) The marginal revenue product of labor is $80. (B) The marginal cost is $1.25. C) The average total cost is $0.80 per unit. (D)The output price is $0.80 per unit. E) The output price is $1.25 per unit.

Answer 1

Answer:

D) The output price is $0.80 per unit.

Explanation:

In order for a profit maximizing firm to operate in a competitive market, the marginal revenue product (MRP) must be equal to the marginal cost (MC).

MRP = MC

MC = $8 per hour (wage rate per hour)

MRP = 10 units per hour x output price per unit = $8

output price per unit = $8 / 10 units = $0.80 per unit