Homework Answers
a) The table is created below. First compute the marginal product as additions made to the total product. Then find the total revenue as the product of price and total output. Then find the marginal revenue which is $3 in this case as fixed because of perfect competition in output market. Finally multiply the marginal revenue and marginal product to get marginal revenue product
| Units of labor | Units of output | Marginal product | Total revenue | Marginal revenue | Marginal revenue product MRP |
| 0 | 0 | 0 | 0 | ||
| 1 | 7 | 7 | 21 | 3 | 21 |
| 2 | 13 | 6 | 39 | 3 | 18 |
| 3 | 18 | 5 | 54 | 3 | 15 |
| 4 | 22 | 4 | 66 | 3 | 12 |
| 5 | 25 | 3 | 75 | 3 | 9 |
b) Demand curve is MRP curve. It is drawn below
c) When wage rate is $15, MRP is $15 for 3 units so firm hires 3 units of labor
d) Total revenue is $54. Total cost is 15*3 = $45. The difference is profit that accrues to the firm
e) When price is $5, MRP changes and now when wage rate is $15, a total of 5 units of labor is hired. This shows that when market price of the product rises, this causes firm to hire more labor.
| Units of labor | Units of output | Marginal product | Total revenue | Marginal revenue | Marginal revenue product |
| 0 | 0 | 0 | 0 | ||
| 1 | 7 | 7 | 35 | 5 | 35 |
| 2 | 13 | 6 | 65 | 5 | 30 |
| 3 | 18 | 5 | 90 | 5 | 25 |
| 4 | 22 | 4 | 110 | 5 | 20 |
| 5 | 25 | 3 | 125 | 5 | 15 |
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A.
What rule should Leadbelly follow to hire the profit-maximizing
amount of labor?
B.
At the profit-maximizing level of output, the marginal product of
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C.
Draw a diagram of the...
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each unit of output for a price of $20 and paying the market wage
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