Marginal revenue product exceeds marginal resource cost

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Reference no: EM131165659

Ms. Smith, the owner and manager of the Clear Duplicating Service located near a major university, is contemplating keeping her shop open after 4PM and until midnight. In order to do so, she would have to hire additional workers. She estimates that the additional workers would generate the following total output (where each unit of output refers to 100 pages duplicated). If the price of each unnit of output is $10 and each worker hired must be paid $40 per day, how many workers should Ms. Smith hire?

Wokers hired 0 1 2 3 4 5 6

Total Product 0 12 22 30 36 40 42

Ms. Smith should hire workers as long as their marginal revenue product (MRP) exceeds their marginal resource cost (MRC) and until MRP=MRC. MRP=MR x MP = P x MP = $10 x MP (use information in the problem to calculate MP). MRC=wages=$40

Reference no: EM131165659

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