A perfectly competitive lemonade producer faces the following marginal product of labor (MPL) function:

MPL = 13 â 3*L

Where L is the quantity of labor (in hours) used by this firm. The market price lemonade is $2 / glass, and the market wage is $2 / hour. To maximize profits, this firm should hire:

A. Zero hours of work, because one labor hour costs as much as the revenue from a single glass of lemonade.

B. Six hours of work, because the seventh has a negative MPL.

C. Four hours of work, because the fifth adds more to costs than to revenues.

D. One hour of work, because the second hour is less productive than the first.

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Hubert KochLv2

31 May 2018

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