📚 Learning Guide
Marginal Product and Labor Costs
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If the relationship between the marginal product of labor and marginal factor cost is analogous to a farmer's decision to plant seeds based on the yield they expect, then what would be the best way to describe the farmer's optimal planting decision in relation to costs?

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Choose the Best Answer

A

The farmer plants until the expected yield from new seeds equals the cost of planting them.

B

The farmer plants as many seeds as possible regardless of the costs.

C

The farmer plants only if the seeds are free.

D

The farmer stops planting when they no longer see immediate profit.

Understanding the Answer

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Answer

A farmer's optimal planting decision is based on comparing the expected yield from planting seeds to the costs associated with planting and maintaining those crops. The marginal product of labor refers to the additional output gained from using one more unit of labor, while marginal factor cost is the cost of hiring that additional labor. When the expected yield from the crops is greater than the cost of hiring labor, it makes sense for the farmer to plant more seeds. For example, if a farmer expects that each additional worker will help produce 100 bushels of corn, but the cost of hiring that worker is only 80 bushels worth of profit, the farmer should hire that worker. This way, the farmer maximizes their profits by ensuring that the benefits of planting outweigh the costs.

Detailed Explanation

The farmer should plant seeds until the extra yield matches the cost of planting. Other options are incorrect because This idea suggests that the farmer ignores costs; This option implies that the farmer only plants if seeds are free.

Key Concepts

Marginal Product of Labor
Marginal Factor Cost
Optimal Hiring Decisions
Topic

Marginal Product and Labor Costs

Difficulty

medium level question

Cognitive Level

understand

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