1. Suppose the marginal expense of hiring another worker is $210, and the margin
ID: 2442932 • Letter: 1
Question
1. Suppose the marginal expense of hiring another worker is $210, and the marginal expense of hiring current workers for an extra hour is $18. The added output associated with an added worker, holding both capital and average hours per worker constant, is 160. The added output generated by increasing average hours per worker, holding capital and the number of employees constant, is 15. (a) (10 points) If the firm is interested in maximizing profits, what should it do? (b) (10 points) Suppose that the firm decides to hire an employment agency to do their hiring instead of finding potential workers themselves. This reduces the marginal expense of hiring a new work by $30 per worker. Does this change the choice of the profit maximizing firm? Explain.
Explanation / Answer
Answer:
a. If the firm is interested in maximizing profits, it should hire current workers for an extra hour as it will be less expensive and more profitable because the marginal expense of hiring a new worker is very high and the output produced is less as compare to the expanse so the firm should increase an hour of the current employees as it is less expensive and also the output is not so less.
b . If the firm hire an employment agency for hiring potential workers and it will reduce the marginal expanse of hiring a new worker by $30 than it will definitely change the choice of the profit maximizing firm as to maximize its profit firm will choose to hire new workers through employment agency.
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