Lee's company of nine workers produces 150 units of a product with a marginal cost of $10 for the last unit. The product sells for $12 per unit. If Lee adds one additional worker, the marginal cost would be $13. In this case, Lee should

A) keep the number of workers at nine.

B) increase the number of workers to ten.

C) decrease the number of workers to eight.

D) increase the marginal cost per unit to $12.

Question

Social Studies

Chloe Obrien

30 July, 04:49

Lee's company of nine workers produces 150 units of a product with a marginal cost of $10 for the last unit. The product sells for $12 per unit. If Lee adds one additional worker, the marginal cost would be $13. In this case, Lee should

A) keep the number of workers at nine.

B) increase the number of workers to ten.

C) decrease the number of workers to eight.

D) increase the marginal cost per unit to $12.

+4

Answers (1)

Know the Answer?

Jared Nixon · Answer 1

The correct answer is A.

A company that seeks profit maximization in a competitive market needs to fulfill the following condition:

price = marginal cost

The marginal cost refers to the cost endured when producing one extra unit In a competitive market firms are price takers, hence the price equals the average revenue and the marginal revenue as well. When deciding the amount to be produced, firms need to use the equality : marginal revenue = marginal cost, which in a competitive environment is translated into: price = marginal cost

In the present example, the firm could only add an extra worker if the increased marginal cost (13) was not exceeding the price (12). As this increase in fact occurs, it is better that the company stays with nine employees.