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:

Depreciation Expense

The orderly assignment of the financial value of a real asset over its life of usefulness.

EBIT

The financial performance metric, Earnings Before Interest and Taxes, deducts all expenses from a firm's income except for interest and tax expenses.

Return On Equity

A measure of a corporation's profitability, calculated as net income divided by shareholder's equity, indicating how effectively management is using a company’s assets to create profits.

Total Equity

The total of all stockholder's equity (both preferred and common stock) plus retained earnings within a company.