Happy Saturday All, (After I wrote this, I realized my mistake. I’ll leave the question up in case anyone is interested. It’s an alright one). I have either made a mistake in my logic on the following question, or the author has. It is from the 2008 Schweser questions: The Zaxon Company produces one product and labor is the only variable resource in the production process. In the short run, Zaxon faces a horizontal demand curve at $20 per unit. The average product of labor in the short run is given by the following table: Resource Units Average Product of Labor 1 25 2 22.5 3 20 4 17.5 If the price of each unit of labor (worker-days) is $350, and only whole units can be employed, how many units of labor will Zaxon employ? A. 1 B. 2 C. 3 D. 4 The answer key says B is the correct answer. I got D. So, to me (econ undergrad), the question is about finding the point where the curves cross: the point where P = MC. Luckily the demand curve is fixed at $20, leaving only the supply curve to figure out. So, the supply curve is going to be the marginal cost curve. To figure out marginal cost, I made a little table (APL = average product of Labor, T = Total, M = Marginal) Units 1 2 3 4 APL 25 22.5 20 17.5 TPL 25 45 60 70 (simply the units * the APL) MPL 25 20 15 10 (MPL is the TPL minus the last TPL) As you can see, the MPL = 20 at units = 2. This is the answer the book gave. But, to me, the question isn’t over yet, because MPL is in units of output, not marginal or total cost. To get total cost, we need to divide the wage rate ($360) by the MPL, yielding MC: (continued from table above) MC 14.4 18 24 36 Yikes… I just realized that I divided them all by 20 (rather than MPL) the first time I did that. Ok, now the nearest answer IS in fact B… Alright… Well. Let this be a lesson to all of you. Do everything twice before asking for help. Thanks guys. I’ll leave it up as an example. Happy studying!