A company operates in a perfectly competitive market, selling each unit of outpu

Question

A company operates in a perfectly competitive market, selling each unit of output for a price of $40 and paying the market wage of $520 per day for each worker it hires. The following table shows the marginal product of labour. Complete the table by calculating the marginal revenue product of labour (MRP of Labour) at each quantity of workers Labour (Number of workers) Marginal Product of Labour (Units) Marginal Revenue Product of Labour ($ per day) 15 14 12 10 2 4 On the following graph, use the blue points (circle symbol) to plot the firm's labour demand curve. Then use the orange line (square symbols) to show the wage rate. Hint: Plot all the blue points from left to right. Line segments will automatically connect the points.

Explanation / Answer

MRP=

MPxprice

The profit maximizng quantity of labor is 1 as wage(cost) is less than MRP only at this level.

Labor MP

MRP=

MPxprice

wage@520 0 15 600 0 1 14 560 520 3 12 480 1560 4 10 400 2080 5 6 240 2600

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