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12 July, 21:54

Assume we have a firm's per-day production dа ta: one person can produce 8 units, 2 people can produce 15 units, 3 people can produce 18 units, and 4 people can produce 20 units. If the per-unit price of the good produced is $5 and daily per-person wages are $27, how many people should the firm hire?

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  1. 13 July, 00:23
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    1 person.

    Explanation:

    For one person;

    Wage = $27

    Total Cost of units = 8*5 = $40

    Per unit profit = (40-27) / 8 = $1.625 per unit

    For two people;

    Wage = $27 * 2 = $54

    Total Cost of units = 15*5 = $75

    Per unit profit = (75-54) / 15 = $1.4 per unit

    For three people;

    Wage = $27 * 3 = $81

    Total Cost of units = 18*5 = $90

    Per unit profit = (90-81) / 18 = $0.5 per unit

    For four people;

    Wage = $27 * 4 = $108

    Total Cost of units = 20*5 = $100

    Per unit profit = (100-108) / 20 = - $0.4 per unit

    Therefore, for the four cases the maximum profit per unit is $1.625, with one person. And since there is no production limits (minimum). So, the firm should hire 1 person.
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