A purely competitive firm faces the marginal product schedule shown in the table
ID: 1174339 • Letter: A
Question
A purely competitive firm faces the marginal product schedule shown in the table below. The price of the product is $25 and the wage rate is $300 per worker.
Calculate the marginal revenue product and complete the table. (Enter your responses as whole numbers.)
Workers
Marginal Product
(MP)
Marginal Revenue Product (MRP)
10
2424
$
11
2020
??
12
1616
??
13
1212
??
14
88
??
15
44
??
The firm should hire
A.
14 workers
B.
11 workers
C.
13 workers
D.
15 workers
Workers
Marginal Product
(MP)
Marginal Revenue Product (MRP)
10
2424
$
11
2020
??
12
1616
??
13
1212
??
14
88
??
15
44
??
Explanation / Answer
Marginal Revenue Product = Marginal Revenue * Marginal Product
Marginal Revenue in every case is 25 since the price remains the same
Now, we need to find the Value of Marginal Product of Labour i.e No. of worker * wage rate
The firm should hire until 13 workers, because beyond which the Value of the marginal product for labour would be higher than the Marginal Revenue Product, and thus the firm will not be able to cover the expenses that it has to incur for paying wages.
Workers Marginal Product Marginal Revenue Product (MP*25) 10 2424 60600 11 2020 50500 12 1616 40400 13 1212 30300 14 88 2200 15 44 1100