A landowner has three farms (A, B, and C) of differing fertility. The levels of output for the three farms with one, two, and three laborers employed are as follows:

For example, if one laborer were hired for each farm, the total output would be 10 + 8 + 5 = 23. This would represent a poor allocation of labor, since if the farm C laborer were assigned to farm A the total output would be 17 + 8 = 25.
a. If market conditions caused the landowner to hire five laborers, what would be the most productive allocation of that labor? How much would be produced? What is the marginal product of the last worker?
b. If we assume that farm output is sold in a perfectly competitive market with one unit of output priced at $1, and we assume that labor market equilibrium occurs when five workers are hired, what wage is paid? How much profit does the landownerreceive?

Transcribed Image Text:

LEVEL OF OUTPUT NUMBER OF LABORERS FARM A FARM B FARM C 10 17 21 13