In this case, we know that a profit maximizing agent would hire as long as marginal revenue product of labor (MRPL) is higher than or equal to its marginal cost i.e. wage rate.
So, first we calculate Marginal product of labor (MPL) and get Marginal Revenue Product of Labor by multiplying MPL with p*. We get the following schedule.
Q | Labor, L | MPL=Change in Q/Change in L | p* | MRPL=P*MPL | w |
0 | 0 | 5 | 60 | ||
11 | 1 | 11 | 5 | 55 | 60 |
27 | 2 | 16 | 5 | 80 | 60 |
47 | 3 | 20 | 5 | 100 | 60 |
66 | 4 | 19 | 5 | 95 | 60 |
83 | 5 | 17 | 5 | 85 | 60 |
98 | 6 | 15 | 5 | 75 | 60 |
111 | 7 | 13 | 5 | 65 | 60 |
122 | 8 | 11 | 5 | 55 | 60 |
131 | 9 | 9 | 5 | 45 | 60 |
138 | 10 | 7 | 5 | 35 | 60 |
We observe that MRPL is higher than wage rate till L=7. After that MRPL<Wage rate.
So, a profit maximizing agent would hire 7 labor for profit maximization in this scenario.
Refer to the table below: Output Labor pt w 47 83 8 122 131 138 10...
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