Question

The following chart represents the schedule of workers and wages for an ice cream shop. Considering that this is a perfect competitive business, what is the optimum number of workers the company should hire if each worker earns $25 per day and each ice cream cone costs $4?
#workers # ice cream cones MPL
0 0
1 10 10
2 18 8
3 24 6
4 28 4
5 30 2

a. 1 worker
b. 5 workers
c. 2 workers
d. 4 workers
e. 3 workers

Answer 1

Answer:

3 workers

Explanation:

At optimal point, wage = Price * Marginal Product of Labour (MPL)

When 3 workers are employed,

Since wage is given = 25

And price = 4

When 3 workers are hired, wage is close to price * MPL because wage = 25 and p*MPL = 24

                                OR

salary paid = $25*3 = $75

Revenue generated = 24*$4= $96

This combination provides the best profit margin which is 96 - 75 = $21.