MPN and labor demand Acme Widget, Inc., has the following production function A

Question

MPN and labor demand Acme Widget, Inc., has the following production function A Find the MPN for each level of employment, and complete the following table. Acme can get $5 for each widget it produces. How many workers will it hire if the nominal wage is $40? Acme can get $5 for each widget it produces. How many workers will it hire if the nominal wage is $30? Acme can get $5 for each widget it produces. How many workers will it hire if the nominal wage is $20? Acme can get $10 for each widget it produces. How many workers will it hire if the nominal wage is $40? The introduction of a new automatic widget maker doubles the number of widgets that the same number of workers can produce. Acme still can get $5 for each widget it produces. How many workers will it hire if the nominal wage is $40?

Explanation / Answer

MPN is defined as the change in output due to unit change in the input(here no of workers),

Hence MPN signifies that by hiring an additional worker, by how much does our output increase.

MRPL is the marginal revenue productivity of labour. It signifies that by hiring 1 additional worker by how much does our revenue increase.

MRPL = MPN * Price of widget

For profit maximization a firm will produce upto the point where it Marginal revenue product of labour is greater than or equal to it wage.

This is due to profit maximzation condition, as firm produces upto the amount till marginal revenue is greater than or equal to marginal cost.

Here marginal revenue is MRPL and marginal cost is the wage paid to the additonal labourer.

.

B.) Wage = $40.

Hence firm will hire 1 labourer, as MRPL(1 to 2) is 35 which is less than wage of $40

C.) Wage = $30.

Hence firm will hire 2 labourer, as MRPL(2 to 3) is 25 which is less than wage of $30

D.) Wage = $20.

Hence firm will hire 3 labourer, as MRPL(3 to 4) is 15 which is less than wage of $20

E.)

Wage = $40.

Hence firm will hire 3 labourer, as MRPL(1 to 2) is 30 which is less than wage of $40.

This can be alse seen as decrease in real wage by a factor of 2 as prices have doubled.

F.)

Wage = $40.

Hence firm will hire 3 labourer, as MRPL(1 to 2) is 30 which is less than wage of $40.

No. of workers 0 to 1 1 to 2 2 to 3 3 to 4 4 to 5 MPN 9 7 5 3 1 MRPL 45 35 25 15 5

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