Suppose a Competitive Firm Pays a Wage of $12 an Hour

question 40

Multiple Choice

Suppose a competitive firm pays a wage of $12 an hour and sells its product at $3 per unit.Assume that labour is the only input.If hiring another worker would increase output by five units per hour, then to maximize profits the firm should

• A)not change the number of workers it currently hires.
• B)lay off some of its workers.
• C)hire the additional worker.
• D)There is not enough information to answer the question.

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Definitions:

Productivity

A measure of the efficiency of a person, machine, system, or industry in converting inputs into useful outputs.

Fair Labor Standards Act

Legislation aimed at protecting workers by setting minimum wage, overtime pay eligibility, and child labor laws.

U.S. Citizen

A person who has acquired the legal status of citizenship in the United States, either by birth within its territory or through naturalization.