A company called RET01 produces computer chips in a city called Nomans City. The

Question

A company called RET01 produces computer chips in a city called Nomans City. The table below shows how many computer chips can be produced daily using various amounts of labor by a firm operating in competitive product and labor markets: Workers/day 0 1 23 10 4 7 8 9 Output/day 010 25 40 53 64 73 82 88 9498 If the figurines sell for $2 and the market wage for the workers is $12 per day. how many workers should the firm employ in order to maximize its profits? Hint: See factor Market - equilibrium occurs at Wage-vMPL 8 workers 10 workers 3 workers 7 workers 4 workers

Explanation / Answer

Option (1).

Profit is maximized when VMPL = Wage rate

VMPL = MPL x Output price = Wage rate [MPL = Change in Output / Change in workers (L)]

MPL x $2 = $12

MPL = 6

From given table, when L increases from 7 to 8, Output changes from 82 to 88.

MPL of 8th worker = (88 - 82) / (8 - 7) = 6/1 = 6

So, number of workers = 8

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