Question 1 (5 points) Units of Quantity Price of Labor of Output Product 20 30 $

Question

Question 1 (5 points) Units of Quantity Price of Labor of Output Product 20 30 $10 2 4 37 10 View the following link and then answer the questions below. Week 10 Video 1) What is the firm's demand curve for labor? 2) Why is the firm's demand curve for labor downward sloping? 3) For this question refer to the above table. Assume that the firm is a price taker in both the product and factor markets. Also assume that the current wage rate to hire employees is $20. If the firm is a profit maximizer, how many units of labor will it hire?

Explanation / Answer

L Total Output Price of product vMPL 0 0 10 1 20 10 200 2 30 10 100 3 35 10 50 4 37 10 20 1) The labour Demand is given by the vMPL or the value of Marginal Product of Labour. 2) Firms Demand for labor is downward sloping because of the decreasing marginal product. For every subsequent inrease in the employment of labor the change in total product decreases. 3)At w = 20, The firm hires where w= vMPL. This is at L = 4. Thus hires 4 units of labor.

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