A firm hires labor in a perfectly competitive labor market. Its current profit-maximizing hourly output is...
A firm hires labor in a perfectly competitive labor market. Its current profit-maximizing hourly output is 100 units, which the firm sells at a price of $5 per unit. The Marginal Physical product (MPP) of the last unit of labor employed is 5 units per hour. The firm pays each worker an hourly wage of $15.
a)What Marginal Revenue (MR) does the firm earn from sale of the output produced by the last worker employed? Explain your asnwer
b)Does this firm sell its output in a perfectly competitive market? Explain your answer
Consult Chapters 28 and 29 to solve this problem. Be detailed.
Homework Answers
a)Marginal revenue is the revenue earned from the additional product.Here the marginal physical product from the last unit of labor employed is 5 units. So MR=output*price (5*5)=$75. So the revenue earned by selling the products which was produced by the last worker is $75 per hour.
b)Yes the firm operates in the perfect competitive market because as a perfectly competitive firm produces a greater quantity of output, its total revenue steadily increases at a constant rate determined by the given market price as is the case with the above situation.
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