Suppose you work as a manager in a firm. Your job is to hire the right number of people to maximize profit. Every worker you hire costs $150 per day, and each unit of output sells for $18 per unit. Given your current labor force, you know that if you hire another worker, that person will increase your output by 32.

1. What is the marginal product of the worker you are considering hiring?

2 What is the value of the marginal product of labor for this potential employee?

3. What is the marginal profnt or loss for hiring this employee? (Use a negative number if hiring this person results in a net loss

4. Should this additional worker be hired?

Answer: 1. 32

2. $576

3. $426

4. Yes

Explanation:

1. What is the marginal product of the worker you are considering hiring?

From the question, we are informed that given current labor force, hiring another worker will increase the output by 32. This means that the marginal product of the worker you are considering hiring is 32.

2 What is the value of the marginal product of labor for this potential employee?

The value of the marginal product of labor for this potential employee will be the product of the price of each unit of output sale and the marginal product of the employee. This will be:

= $18 * 32

= $576

3. What is the marginal profit or loss for hiring this employee?

The marginal profit or loss will be the difference between the value of the marginal product of labor for this potential employee and the hiring cost per day for every worker. This will be:

= $576 - $150

= $426

There is a marginal profit of $426.

4. Should this additional worker be hired?

Yes, the additional worker should be hired because there is a positive marginal profit.