Use the following table to answer questions 5 to 9 Quantity of Labour Total Outp

Question

Use the following table to answer questions 5 to 9 Quantity of Labour Total Output 10 19 27 34 40 45 49 47 2 7 5. Suppose the wage rate is $55 per hour and the product's price $10, how many units of labour will the firm hire to maximize profits? a. 2 b. 3 c. 4 d. 5 e. 6 6. Suppose the wage rate increased and became $75 per hour and the product's price-$10, how many units of labour will the firm hire to maximize profits? a. 2 b. 3 c. 4 d. 5 e. 6 7. Suppose the government set a minimum wage of S 120 per hour and the product's price-S10, how many units of labour will the firm hire to maximize profits? a. 0 b. 3 c. 4 d. 5 e. 6

Explanation / Answer

5) Calculate vMPL that is value of marginal product of labour.

VMPL is equal to P* MPL.

Labour is hired till the point where vMPL >=w.

Thus MPL for L =5 is 6.

vMPL = 10*6=60

For L=6, MPL=5.

vMPL = 10*5=50.

Thus w=55<60, therefore correct option is d, L=5.

6) W<= vMPL rule now L =3, whee MPL = 27-19=8

vMPL =10*8=80.>w=75.

Thus L=3.

Correct option is b.

7)

At tw =120. The firm chooses L= 0, because the vMPL is less than 120 at all levels of employment.

Thus the correct option is a.

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