A firm is hiring labor in a perfectly competitive market. The relationship between labor and output is given below. Assume labor is only available in whole quantities (ie L = 2.5 not possible).
A firm is hiring labor in a perfectly competitive market. The
relationship between labor and output is given below. Assume labor is only available in whole quantities (ie L = 2.5 not possible). The current market wage is $100
Labor Total product
1 25
2 47
3 64
4 74
5 79
a) Calculate the MRP if the price of the firm’s output is $8
b) Explain why the firm won’t hire 4 workers at this price of output and wage.
c) Suppose that the price of the firm’s output increases to $12. Explain whether this would cause the firm to hire more or fewer workers.
d) How might this change in output price affect the wage? Could that affect your answer to (c)?
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