Attempts: A firm produces in a perfectly competitive market and hires labor in a

Question

Attempts: A firm produces in a perfectly competitive market and hires labor in a perfectly competitive laber market The firm hires four workers, the marginal product of the fourth worker is 4, and the wage rate is S40·The firm produces 100 units of the product, which sell for a price of S10. This firm is: Oa not maximizing profit when it produces 100 units of the produet and should increase production to increase profit. Ob. not maximizing profit and should hire more workers to increase profit O e. not maximizing profit when it produces 100 units of the product and should decrease production to increase profit Order #: on 23 Janu /2318 o,, 1 9

Explanation / Answer

Note that wage rate is 40. Hence optimum number of labors should have a value of MPL equal to 40. Here MPL of fourth worker is 4 and price of output is 10. Hence VMPL = 4*10 = 40. Since the optimum rule is followed, the firm is maximizing its profit

Option E is correct.

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