Assume that the labor market is perfectly competitive. The product market is imp
ID: 1169492 • Letter: A
Question
Assume that the labor market is perfectly competitive. The product market is imperfect. (i.e. as output increases, price decreases). Column D1 gives the firm’s product demand. (1 point each).
Labor
Output
Price (D1)
0
0
$20
1
15
$19
2
29
$18
3
42
$17
4
54
$16
5
65
$15
6
75
$14
7
80
$13
1.If the wage rate is $150, the firm will achieve maximum profit by hiring _____ workers. (in detail)
2.The extra revenue generated by the fifth worker is ____________.(in detail)
3.If the wage rate rises from $150 to $237, the firm will reduce the quantity of labor employed by _____ unit(s). (in detail)
Labor
Output
Price (D1)
0
0
$20
1
15
$19
2
29
$18
3
42
$17
4
54
$16
5
65
$15
6
75
$14
7
80
$13
Explanation / Answer
1.If the wage rate is $150, the firm will achieve maximum profit by hiring _____ workers:
Consider the following table:
From the above table it is clear that the firm gets maximum profit when it will hire either 3 units or 4 units of labor that will give $264 profit to the firm at $150 wage rate.
2.The extra revenue generated by the fifth worker is "TR at 5 workers - TR at 4 workers = 750 - 600 = $150".
3. 3.If the wage rate rises from $150 to $237, the firm will reduce the quantity of labor employed by _____ unit(s). Again consider the following table:
Thus the firm will reduce the quantity of labor by 2 units if it employed 1 from 3 workers or 2 from 4 workers.
Labor Output Price (D1) Total Revenue (Output*Price) Total Cost (Labor*150) Profit(TR-TC) 0 0 $20 $0 0 $0 1 15 $19 $285 150 $135 2 29 $18 $522 300 $222 3 42 $17 $714 450 $264 4 54 $16 $864 600 $264 5 65 $15 $975 750 $225 6 75 $14 $1,050 900 $150 7 80 $13 $1,040 1050 ($10)Related Questions
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