Assume that the labor market is perfectly competitive. Column D 1 gives the firm

Question

Assume that the labor market is perfectly competitive. Column D1 gives the firm’s product demand. (1 point each)

Labor

Output

Price (D1)

0

0

$20

1

15

$20

2

29

$20

3

42

$20

4

54

$20

5

65

$20

6

75

$20

7

80

$20

1.If the wage rate is $200, the firm will achieve maximum profit by hiring _____ workers.

2.If the wage rate rises from $200 to $260, the firm will reduce the quantity of labor employed by _____ unit(s).

3.The value of the marginal product of the fifth worker is:

Labor

Output

Price (D1)

0

0

$20

1

15

$20

2

29

$20

3

42

$20

4

54

$20

5

65

$20

6

75

$20

7

80

$20

Explanation / Answer

1. If the wage rate is $200, the firm will achieve maximum profit by hiring 6 workers.

B) If the wage rate rises from $200 to $260, the firm will reduce the quantity of labor employed by 3 units.

C) The marginal product of labor(MPL) is the change in output that results from employing an added unit of labor.

The value of the marginal product of the fifth worker is $220. (1300 - 1080)

Labor output D1 Revenue Cost Profit(R-C) 1 15 20 300 200 100 2 29 20 580 400 180 3 42 20 840 600 240 4 54 20 1080 800 280 5 65 20 1300 1000 300 6 75 20 1500 1200 300 7 80 20 1600 1400 200

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