Homework Answers
Answer
In order to maximize profit a firm hire that amount of worker such that Marginal revenue Product of worker(MRP) = wage rate.
Here wage rate = 100 and MRP = Price of output*Marginal Product of labor and it is given that Price of output(manicure) = 25
=> MRP = 25*Marginal Product of labor
Thus according to Profit maximizing condition we have MRP = wage rate => 25*Marginal Product of labor = 100
=> Marginal Product of labor = 4.
Thus we have to find amount of labor or worker for which Marginal product of labor = 4.
Formula :
MP(L) = TP(L) - TP(L-1)
where MP(L) = Marginal product of Lth unit of labor, TP(L) = Total output when L units of labor are hired.
Thus we have MP(7) = TP(7) - TP(6) = 52 - 48 = 4.
Thus Marginal product of labor = 4 when amount of worker(L) = 7.
Hence, He will hire 7 workers.
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