Question

Liyun owns a small flower shop, and the industry is perfectly competitive. She is considering whether to hire an additional worker. The wage rate for the worker is $500 per week; the marginal product of the additional worker would be 100 units per week; and the price of the units is $10 each. Liyun should: Select one: a. raise the price of the flower arrangements that she sells. b. not hire the additional worker. c. hire the additional worker. d. Not enough information is given to answer the question

Answer 1

Answer:

C) hire the additional worker.

Explanation:

The marginal revenue generated by the additional employee is $1,000 (= 100 units x $10 per unit), while the marginal cost of hiring the additional employee is only $500. Since the marginal revenue is greater than the marginal cost ($1,000 > $500), then Liyun should hire the additional employee.