A firm faces a perfectly elastic demand for its output at a price of $6 per unit

Question

A firm faces a perfectly elastic demand for its output at a price of $6 per unit of output and each hour of labor produces five units of output. For L number of workers hired each hour and w hourly wage rate, the firm faces an upward- sloped labor supply curve of: L = 20w A firm faces a perfectly elastic demand for its output at a price of $6 per unit of output and each hour of labor produces five units of output. For L number of workers hired each hour and w hourly wage rate, the firm faces an upward- sloped labor supply curve of: L = 20w

Explanation / Answer

for profit maximiziation, Marginal Cost of labour = Marginal Revenue product of labour

MC = 6+.1L = 6+.1(20w-120)

MRPL = $6*5

6+2w-12 = 30

w = 36/2 = 18

L = 20*18-120 = 240

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