Chapter 13R, Problem 8MCQ

To determine

The correct option that defines the input level where firm can realize maximum profit.

Answer to Problem 8MCQ

Option c is correct.

Explanation of Solution

Explanation for correct option:

Given Information:

Number of workers	Total output/hour	Marginal Product	MRP
1	10	10	20
2	22	12	24
3	30	8	16
4	36	6	12
5	40	4	8
6	43	3	6
7	45	2	4
8	46	1	2

c.

Profit maximization can be attained by producing until the marginal revenue product (MRP) is greater or becomes equivalent to the wage rates of the labor. In this questions, the wage rates i.e. $8 per hour is equivalent to MRP when 5 workers are hired. Therefore, option c is correct

Explanation for incorrect options:

Since, question is calculation based, all other options except c are incorrect.

Economics Concept Introduction

Factor of production: Factor of production refers to the components or the resources that are required for producing intangible or tangible products.

Factor income: Factor income refers to returns received by the producer for inserting each factor of production as an input.