ABC Limited, Inc., sells its product in a perfectly competitive market for a price of $15 per unit and hires workers at a daily wage of $75. Labor is the only factor cost, and the firm is currently earning profits. If ABC hires one more worker and output increases by 5 units per day, the firm's profits will:

Question

Business

Ernesto Crosby

30 November, 21:24

ABC Limited, Inc., sells its product in a perfectly competitive market for a price of $15 per unit and hires workers at a daily wage of $75. Labor is the only factor cost, and the firm is currently earning profits. If ABC hires one more worker and output increases by 5 units per day, the firm's profits will:

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Answers (1)

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Pamela Campos · Answer 1

The company's profit will remain unchanged.

Explanation:

The new worker will increase costs by $75 per day while the total sales will increase by $75 per day ( = 5 units x $15). The only way the company increases its profit is that they sell at least 6 more units per day.