8. Suppose there is perfect competition in both the markets for inputs and outpu

Question

8. Suppose there is perfect competition in both the markets for inputs and outputs. Say that a firm is hiring hours of labor to produce a good and that the output price is $10, the marginal product of labor at its current choice is 3, and the wage rate per hour is $12. If the firm hires another hour of labor, the marginal product of labor decreases to 2.99999. (a) the firm could increase profits by hiring another hour of labor (b) the firm should increase its price to $11 (c) the firm should decrease its output to increase profits

Explanation / Answer

The firm could increase profits by hiring another hour of labour. The reason is revenue then is equal to 2.99 into 10=29. 9 whiles cost is just 10

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