Question

The production function in an economy is:

Y = 4(3.00N-0.0064N²),
where the marginal product of labor is given by:
MPN = 4(3.00-0.0128N).
The equation for the labor supply curve is: NS = 62.0 + 15(1-t)w, where NS is the amount of labor supplied, w is the real wage and t is the tax rate on wage income. The tax rate is t = 0.25. Determine the labor demand function.

Answer 1

The value of each worker's marginal product depends on the market price of the product. The labor demand function can be calculated using the marginal product of labor and the price.

Step-by-step explanation:

The value of each worker's marginal product depends on the market price of the product. In a perfectly competitive market, the demand for labor can be calculated as the product of the marginal product of labor (MPN) and the price (P): Demand for Labor = MPN x P.

To determine the labor demand function, we can substitute the given equation for the marginal product of labor (MPN) into the above formula. In this case, MPN = 4(3.00-0.0128N). The labor demand function can be expressed as:

Demand for Labor = MPN x P = 4(3.00-0.0128N) x P