Question

Mary is considering hiring another worker in an assembly line for MP3 speakers. Mary knows the average product of labor is 15 speakers per day. She also believes that the next worker hired will produce an extra 12 speakers per day. A speaker sells for $10. Assuming that the market for speakers is perfectly competitive, Mary should hire another worker:
a. only if the new worker's daily wage is $120 or less
b. only if the new worker's marginal product is 12 or more
c. since the marginal product is below the average product
d. only if the new worker's daily wage is $150 or less

Answer 1

Answer:

A) only if the new worker's daily wage is $120 or less

Explanation:

Since the new worker is expected to produce 12 speakers per day and each speaker sells for $10 each, the total additional income is $120. Since the market for speakers is perfectly competitive, then Mary should pay the worker a maximum wage equal to the additional income he provides. Off course if Mary pays a smaller wage she will earn more money.