Question

A firm produces in a perfectly competitive market and hires labor in a perfectly competitive labor market. The firm hires four workers, the marginal product of the fourth worker is 4, and the wage rate is $40. The firm produces 100 units of the product, which sell for a price of $10. This firm is _____

Answer 1

Answer:

This firm is

not maximizing profit and should hire fewer workers to increase profit

Explanation:

Labor=4 workers

Output=100 units

Wage rate=$40

Unit price=$10

Marginal product (MP) of 4th worker=4

Total revenue= Output×price

=100×10

=$1000

Marginal product(MP) is the increase in output as a result of an increase in unit of inputs.

MP= Change in output/change in inputs.

The marginal product of the fourth labour doesn't increase output as required and the fourth labour is paid the same wage rate, in order for the firm to maximize Profit, it is advertised that the firm should reduce labor force.