Afarmer who has fixed amounts of land and capital finds that total product is 24 for the first worker hired; 32 when two workers are hired; 37 when three are hired; and 40 when four are hired. the farmer's product sells for $3 per unit and the wage rate is $13 per worker. how many workers should the farmer hire?

a) 20.b) 32.c) 37.d) 40.

C) 37

Explanation:

This question is wrong, according to given options in the question it should be, What is the farmer's profit-maximizing output?, instead of How many workers should the farmer hire?

Marginal Product of Labour (MPL): MPL is the increase in total production when one unit of labour is added.

Marginal Revenue Product of Labour (MRPL): MRPL is the increase in revenue when one unit of labour is added.

Marginal Cost of Labour (MCL): MCL is extra cost of employing an additional unit of labour

    Total Product             MPL                           MRPL                      MCL

1st Labour = 24      

2 Labour   = 32  (32-24) = 8                       8 X $3 = $24             $13 ($13 X 1)

3 Labour   = 37  (37-32) = 5                        5 x $3  = $15             $13 ($13 X 1)

4 Labour   = 40  (40-37) = 3                        3 X $3 = $9              $13 ($13 X 1)

When MRPL is greater than MCL the firm is generating profit from hiring additional labour/worker.

If MRPL and MCL become 0 than the firm is neither making profit nor loss from hiring additional labour/worker.

If MCL is greater than MRPL the firm is making loss from hiring additional labour/worker.

In the above table, with 3 workers farmer's MRPL is greater than MCL but when it hires 4th worker MCL becomes greater than MRPL so firm will not hire 4th worker.

So farmer's profit-maximizing output will be 37, which is the output of 3 workers.

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