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7 November, 14:11

A profit-maximizing firm's daily total revenue is $155 with 3 workers, $200 with 4 workers, and $230 with 5 workers. the cost of each worker is $40 per day. the firm should

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  1. 7 November, 17:12
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    Worker would be a variable output,

    155 with 3 worker, 120 for their wage (variable cost), marginal rev would be 51.7. Can't calculate ATC because no Q is given.

    200 with 4 workers - >45 marginal rev, 160 for their wage mr=50

    230 with 5 workers - >30 marginal revenue, 200 for their wage mr=46

    Because of the law of diminishing returns, the marginal revenue decreases as the firm hires more workers as the resources are fixed (assuming this is in short run). The firm should refrain from hiring more workers and focus more on buying machinery (capital resources) in order to make the most out of the workers, then hire more staffs when there are enough resources for them to work on.
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