Question

Name: 1. Consider a firm that hires workers (L) and produces output (Q). a. If the firm charges a price of $1 per unit output (P) and pays a nominal wage of $8 per worker (W), fill in the values in the following table, where MPL is marginal product of labor (units per worker), VMPL is the value of the marginal product of labor ($ per worker), and W/P is the real wage (units per worker). Labor Output MPL Price VMPL W W /P 20 156 A 60 b. How many workers will the firm hire? How do you know? c. Fill in the table below assuming the price is now $2 and the nominal wage is $16. Labor Output MPL Price VMPLW W/P 1 20 36 48 56 60 62 d. How many workers will the firm hire? e. Using the information in the table above, fill in the table below, Price Real wage Workers Hired S1 Nominal Wage $20 40 16 32 12 24 16

Answer 1

A.

MPL Price VMPLW W/P 0001 080 20 20 36 16 48 12 1 568 CO CO CO CO CO COCO CO CO CO CO COCO co

B.

Since the profit-maximizing condition is

W=VMPL

As it can be seen in the table that this condition is satisfied by hiring 4 labor.

So firm will hire 4 workers.

c.

If price increase to $2 and W=$16

PL W W/P | Q 0 1 | 2 M 0 20 36 Price 0 20 16 VMPL 2 0 2 40 2 32 16 16 16 co 16 on 2 16 16 16 16 a | 5 4 on

d.

Since the profit-maximizing condition is

W=VMPL=16

As it can be seen in the table that this condition is satisfied by hiring 4 labor.

So firm will hire 4 workers.