Question

4. Marginal resource cost A company operates in a perfectly competitive market, selling each unit of output for a price of $20 and paying the market wage of $270 per day for each worker it hires. In the following table, complete the column for the value of the marginal product of labor (VMPL) at each quantity of workers. Labor (Number of workers) 0 Output Marginal Product of Labor (Units of output) (Units of output) Value of the Marginal Product of Labor (Dollars) 0 20 1 20 39 AAA 19 2 18 3 57 15 4 72 12 5 84 On the following graph, use the blue points (circle symbol) to plot the firm's labor demand curve. Then, use the orange line (square symbols) to show the wage rate. Line segments will automatically connect the points. (Note: If you cannot place the wage rate at the level you want, move the two end points individually.) Hint: Remember to plot each point halfway between the two Integers. For example, when the number of workers increases from 0 to 1, the value of the marginal product for the first worker should be plotted with a horizontal coordinate of 0.5, the value halfway between 0 and 1

Answer 1

labour The firm will hire value of Marginal product untill Wage rate > value of marginal product is greater than wage rate till the 4th labour is hired When the 5th labour is hired VMP (240) < wage rate (270) This the 5th unit of labour will not be hired Profit maximizing quantity of labour at market 4 units of labour wage rate yoo 380 abom 360 Labour demand curve 3 340 320 VMP > wage rate 300 $270 wage rate = 280 260 1 240 Labour 220 5 N 3 1

Price = $20 wage $270 (2) Labour output (Q) Marginal Product (MP) O O value of MP Price MP = EMPL 20x20 = 400 20X19! = 380 20 X 18 = 360 20 20 2 19 39 57 3 18 15 20 X 15 5 300 4 5 72 84 12 20X12 240