4. The labor supply table below is for a firm of hiring labor competitively and
ID: 1215274 • Letter: 4
Question
4. The labor supply table below is for a firm of hiring labor competitively and selling its product in a competitive market for $2 per unit..
Units of Labor 1 2 3 4 5 6
Total product 17 31 43 53 60 65
MRP in perfectly competitive market ___ ___ ___ ___ ___ ___
MRP in imperfectly competitive market ___ ___ ___ ___ ___ ___
a. Fill in the MRP in perfectly competitive market.
How many workers will the firm hire if the going wage rate is $23?_______
Explain why the firm will not hire a larger or smaller number of workers at this wage rate?__________________________________
b. Now assume that it is selling in an imperfectly competitive market and that, it can sell 17 units at $2.2 per unit, it must lower product price by 5 cents in order to sell the marginal product of each successive worker. Fill in the MRP in imperfectly competitive market.
How many workers will the firm hire if the going wage rate is $23? _____
c. Compare the factor demand curves of the firm when it is selling in a perfectly competitive market and imperfectly competitive market, which curve is more elastic? Explain:__________
Explanation / Answer
a.
Labor
Product
Total Revenue @ $2 / product
MRP in perfectly competitive market
1
17
34
2
31
62
28
3
43
86
24
4
53
106
20
5
60
120
14
6
65
130
10
MRP at a particular number of labor = (current revenue – just preceding revenue) / (current labor – just preceding labor)
At the going wage rate of $23, Firm will hire 3 workers.
If company hires more than 3 workers then wage rate paid for additional labor will be higher than the revenue generated by that additional labor. It will reduce profit. Hiring less than 3 workers will cause lesser profit and revenue will not be maximized. It is reflected by MRP at each level of number of workers.
b.
Labor
Product
MP
Total Revenue
MRP in imperfectly competitive market
1
17
37.4
2
31
14
67.5
30.1
3
43
12
92.7
25.2
4
53
10
113.2
20.5
5
60
7
127.2
14
6
65
5
136.95
9.75
Labor
Product
Total Revenue @ $2 / product
MRP in perfectly competitive market
1
17
34
2
31
62
28
3
43
86
24
4
53
106
20
5
60
120
14
6
65
130
10
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