the next question on the basis of the data contained in the following table hiri

ID: 1128592 • Letter: T

Question

the next question on the basis of the data contained in the following table hiring labor in a purely competitive market. Assume Units Total Product ef labor product price $2.20 2.00 1.80 1.60 1.40 1.20 1.10 15 28 39 48 13. Refer to the above data. If the wage rate is $11, how many A. 5 B. 4 workers will the firm choose to employ? C. 3 D. 2 will: 14. Other things equal, the resource A. lie below its marginal revenue product curve B. be subject to increasing marginal productivity C. be less elastic than that of a purely competitive seller. D. be more elastic than that of a purely competitive seller. demand curve of an imperfectly competitive seller Quantity of labor 15, Refer to the above graph. An increase in labor demand (as distinct from an increase in the qu demanded) is shown by the A. shift from labor demand curve Di to D2 R shift from labor demand curve Ds to D2

Explanation / Answer

13. B. 4

Explanation: In a purely competitive market, a firm should hire workers as long as the wage is less than or equal to the value of the marginal product labor. It should not hire workers when the wage exceeds the value of the marginal product of labor. The marginal product of each unit of labor and the value of marginal product of labor is calculated as follows:

Units of Labor

Total Product

Price

Marginal Product

Value of Marginal Product

$2.20

$2.00

5 * $2.00 = $10

$1.80

28 -5 = 23

23 * $1.80 = $41.4

$1.60

39 – 28 = 11

11 * $1.60 = $17.6

$1.40

48 – 39 = 9

9 * $1.40 = $12.6

$1.20

55 – 48 = 7

7 * $1.20 = $8.40

$1.10

60 – 55 = 5

5 * $1.10 = $5.5

It can be seen that the value of marginal product of labor is greater than the wage up to the 4th unit of labor. When the firm hires the 5th worker, the wage exceeds the value of marginal product of labor. So, the firm should hire only 4 workers.