3. Problems and Applications Q3 Suppose that labor is the only input used by a p

Question

3. Problems and Applications Q3

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

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

Days of Labor

Units of Output

Marginal Product of Labor

Value of the Marginal Product of Labor

(Dollars)

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.

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

Wage

Quantity of Labor Demanded

(Dollars per day of labor)

(Days of labor)

1

Days of Labor

Units of Output

Marginal Product of Labor

Value of the Marginal Product of Labor

(Dollars)

0 0 1 7 2 13 3 18 4 22 5 25 6 27 7 28

Explanation / Answer

MPL (nth unit) = Output (n units) - Output ((n-1) units)

VMPL = MPL x Price

Maximum wage = VMPL

Days of Labor Units of Output Marginal Product of Labor Value of the Marginal Product of Labor (Dollars) 0 0 1 7 7 70 2 13 6 60 3 18 5 50 4 22 4 40 5 25 3 30 6 27 2 20 7 28 1 10

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