Reference no: EM132587870

Seth and Jane, co-owners of AshBoard Inc., hire you as a consultant to settle a dispute between themselves. They produce $8000 worth of skateboards each week using their 10 employees (including themselves). Their marginal capital costs are zero since they use discarded wood for their boards and all other capital costs are fixed and paid off. Their labor costs are $800 per worker per week. Seth claims that the company has hired the optimal number of workers, since profits are zero (after paying themselves). Jane argues that they hired more people than is 4 optimal and that they should let at least one person go. Assuming diminishing returns to labor, who is right? Explain your reasoning.