Question

Suppose the following is how many widgets workers can produce: P=$10. How much is MRP of each worker?

L              TP         w     MP         MRP      TE         ME

0              0         10    

1              12       20

2              22      30    

3              30       40   

4              36       50

5              40        60  

6              42        70  

a. Using the above information, solve for the MP, MRP, and TE, ME for each worker. Assume the price of output is p=$10.

b. If there is no minimum wage, how many workers should the firm hire?

c. If the minimum wage is $40 how many workers should the firm hire?

Answer 1

a.

b.

If there is no minimum wage law, then optimal number of worker will be determined by the following condition

W=MRPL or MRPL should be greater than W.

Hence this condition will be satisfied at 4 unit of labor at which MRPL is 60 which is greater than wage rate of $50.

c.

If the minimum wage is $40, then optimal number of worker will be determined by the following condition

40=MRPL or MRPL should be greater than 40.

Hence firm should hire 3 units of labor at which MRPL is $80.