1. The nation of Ectenia has 20 competitive apple orchards, which sell apples at
ID: 1194628 • Letter: 1
Question
1. The nation of Ectenia has 20 competitive apple orchards, which sell apples at the world price of $2. The followings equations describe the production function and the marginal product of labor in each orchard:
Q = 100L – L2 MPL = 100 – 2L,
Where Q is the number of apples produced in a day, L is the number of workers, and MPL is the marginal product of labor.
a. What is each orchard’s labor demand as a function of the daily wage W? What is the market’s labor demand?
b. Ectenia has 200 workers who supply their labor inelastically. Solve for the wage W. How many workers does each orchard hire? How much profit does each orchard owner make?
Explanation / Answer
a) MPL = W
100 - 2L = W
Labour demand function: L = 50 - (W/2)
Market's labour demand is: 20L = 1000 - 10W
b) Inelastic labour supply of 200 workers
Labour supply = labour demand
50 - W/2 = 200
W = 300
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