Question

In the short run, a tool manufacturer has a fixed amount of capital. Labor is a variable input. The cost and output structure that the firm faces is depicted in the table below. Assume the product price is $4. Calculate the marginal revenue product and the marginal resource cost, and then complete the table. Instructions: Enter your answers as whole numbers.
	Quantity of Labor Total Product Marginal Product Marginal Revenue Product ($) Hourly Wage Rate ($) Total Labor Cost ($) Marginal Resource (Labor) Cost ($) 10 300 - - 14 140 - 11 318 18 16 176 12 334 16 18 216 13 348 14 20 260 14 360 12 22 308 15 370 10 24 360 The equilibrium wage rate ($) = The equilibrium level of labor use =

Answer 1

Quantity of labor	Total product	Marginal product	Marginal revenue product	Hourly wage rate	Total labor cost	Marginal resource (labor) cost
10	300			14	140
11	318	18	72	16	176	36
12	334	16	64	18	216	40
13	348	14	56	20	260	44
14	360	12	48	22	308	48
15	370	10	40	24	360	52

Marginal revenue product = Marginal product * Price

Marginal resource cost = (Change in total labor cost / Change in quantity of labor)

At equilibrium point, Marginal revenue product of labor = Marginal resource cost of labor.

Marginal revenue product of labor = Marginal resource cost of labor = 48 corresponding to 14 units of labor.

Hence, the equilibrium wage rate = $22

equilibrium level of labor use = 14