Suppose that labor is the only input used by a perfectly competitive firm. The f

Question

Suppose that labor is the only input used by a perfectly competitive firm. The firm’s production function is as follows:

1. Complete the third column of the following table by calculating the marginal product for each additional worker. (Completed)

2. Complete the following demand schedule by indicating the maximum wage the firm would be willing to pay for each quantity of labor

3. If the price of output rises from $10 to $12 per unit, the labor-demand curve will...
a. shift to the right
b. shift to the left
c. remain as is

Complete the third column of the following table by calculating the marginal product for each additional worker. Value of the Marginal Product of Labor (Dollars) Days of Labor Units of Output Marginal Product of Labor 70 60 60 60 30 6 13 19 25 28 29 29 6 Each unit of output sells for $10. Complete the fourth column of the previous table by calculating the value of the marginal product of each worker.

Explanation / Answer

(1) In the first table, MPL and VMPL are correctly computed.

(2) For the second table, Maximum wage = VMPL corresponding to the number of workers, shown as follows.

(3) Option (a)

When price of output rises, VMPL (= Output price x MPL) rises. Since VMPL represents the demand for labor, an increase in VMPL at every unit of labor will increase the demand for labor and shift the labor demand curve rightward.

Wage ($) (= VMPL) Quantity of labor demanded 0 7 10 6 30 5 60 4 60 3 60 2 70 1

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