Question

Suppose Kingston Steel Inc. hires its workers in a competitive labour market. Currently, the firm employs 1,000 workers at the wage of $40,000 per year and produces 50,000 tons of steel per year. The steel market is perf ctly competitive and the price of steel is $2,000 per ton. If they hired one more worker, their total revenue would

A.not change.

B.increase approximately by $50,000 per year.

C.increase approximately by $2,000 per year.

D.increase approximately by $100,000 per year.

E。increase approximately by $40,000 per year.

Answer 1

Answer

The correct answer is (D) increase approximately by $100,000 per year.

Initially this firm is hiring 1000 workers and producing 50,000 tons of steel. This means that on average a worker is producing 50,000/1000 = 50 tons of output.

Thus if he hires one more unit of worker then he will produce approximately 50 tons of output(Note here we have taken Average product but for such type of problems in order to calculate exact value we use Marginal product i.e. Change in Output/Change in worker).

Now 1 additional unit of worker will produce 50 tons and he is selling at a price of 2000 per ton in a competitive market i.e. at a constant price of 2000.

Thus, from 50 tons we will get a revenue of 50*2000 = 100,000(approximately)

So, If they hired one more worker, their total revenue would increase approximately by $100,000 per year.

Hence, the correct answer is (D) increase approximately by $100,000 per year.