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

question 25

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 maximise 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:

Process Costing

An accounting methodology used to allocate costs to units of production in continuous or repetitive processes.

Work in Process Inventories

Inventories of products that are in the stages of being produced but are not yet completed.

Normal Spoilage

The expected amount of waste or loss that occurs under efficient operating conditions during the production process.

Production Cost

The total expense incurred in the manufacturing of goods, including materials, labor, and overhead costs.