Diagnosing an Unexpected Profit Calculation
A junior analyst at a consulting firm has identified an employment level, N*, for a client where the marginal revenue from an additional hire is exactly equal to the marginal wage cost. The analyst recommends this as the profit-maximizing level of employment. However, a senior economist reviews the work and points out that the second derivative of the profit function at N* is positive, meaning N* is actually a local profit minimum. Based on the principles of firm optimization, what specific characteristic of the firm's total wage cost function could explain this counterintuitive result? Explain your reasoning.
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CORE Econ
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Economics
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
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