Question

You are given the following schedule for the production of pens by a firm

Labor Total Product

0 0

1 20

2 50

3 70

4 80

5 85

6 82

If pen sells for Rs 3 per unit and workers can be hired in a competitive labor market for Rs30 

per day, how many workers should be hired? Explain your answers clearly.

Answer 1

Only 2 workers should be hired. This is because 2 units of labor will yield maximum marginal product, that is, largest change in output associated with employment of an additional unit of labor.