Suppose a Competitive Firm Is Paying a Wage of $12

question 17

Multiple Choice

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

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

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Definitions:

Overhead Cost

Indirect costs related to the general operation of a business and not directly tied to a specific product or service.

Activity-Based Costing

A costing method that assigns overhead and indirect costs to specific activities, providing a more accurate reflection of the resources consumed to produce a product or service.

Activity Rate

The cost driver rate used in activity-based costing to allocate costs to products or services based on specific activities.

Supervising Costs

Expenses related to the management and oversight of workers and production processes, including salaries of supervisors and managerial staff.