1. Below is productivity data for firm Nearly Done Inc. which purchases resource
ID: 1219250 • Letter: 1
Question
1. Below is productivity data for firm Nearly Done Inc. which purchases resources in a perfectly competitive labor market. Quantity of TP MPL Unit Price of Product S 10 18 28 36 42 46 48 49 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 6 6 9 1.Refer to the above information what quantity of labor will Nearly Done Inc. employ if the market wage rate is $82 2. What is Nearly Done's total revenue if the market wage rate is $8. 3. What is Nearly Done's total wage bill if the market wage rate is $8? 4. At its optimal output, what is Nearly Done's total profit or loss if the market wage rate is $8, total fixed costs are $24 and labor costs are the only variable costs? 5. Suppose that the market wage rate is $8, how much more labor will Nearly Done Inc. employ if the marginal product of labor doubles? 6. In what type of market does Nearly Done Inc. sell its output? 7. What quantity of labor will Nearly Done Inc. employ and what will its total revenue be if the market wage rate is $4?Explanation / Answer
Given that the market wage is 8$. We know that PRICE*MARGINAL PRODUCTIVITY=WAGE in a competitive market. We also know that price of all the product is 2$.Thus the marginal productivity corresponding to this is WAGE/PRICE=8/2=4. Thus the quantity of labour employed corresponding to Marginal Productivity 4 is 7. Marginal Productivity 4 is also attached with the quantity 1, but this will not be the equilibrium as after that point the marginal productivity increases and hence the company will employ more of laborers to increase the profit. Corresponding to 7 unit of labors, the total productivity is 46.This means that 46 units are produced by the 7 labors. Thus total revenue is 46*2=92$ Nearly Done hires 7 labors with wage $8 each. So the wage bill is 7*8=56$. Given that the total fixed cost is 24$ and the labor cost is the only variable cost.So the total cost is 24+56=80$. Before calculated that the revenue is 92$. So the profit is 92-80=12$. If the marginal product of labor doubles, then more commodities can be produced with fewer labors and hence it will employ the labor quantity corresponding to 8, that is5. It will not employ 3 as with increasing the laborers, the marginal productivity increases. Thus the number of labourers will be reduced by 7-5=2. As prices are same for all the outputs, Nearly Done Inc sells its output in perfectly competitive market. If the market wage rate is 4$, then it will employ wage/price=4/2=2 Marginal Productivity. Thus the labor corresponding to this is 8. The total revenue will be 48*2=96$.
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