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unit of labor total product product price 0 0 $ 2.20 1 15 2.0 2 28 1.80 3 39 1.60 4 48 1.40 5 55 1.20 6 60 1.10 refer to the table, which gives data for a firm that is hiring labor in a purely competitive market. if the wage rate is $4.5, how many workers will the firm choose to employ? multiple choice 2 3 5 4

User Vortico
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2 Answers

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Final answer:

The firm will not choose to employ any workers if the wage rate is $4.5.

Step-by-step explanation:

To determine the firm's profit-maximizing level of employment, we need to compare the wage rate to the value of the marginal product (VMP) at each level of labor. The VMP is calculated by multiplying the marginal product of labor by the product price.

If the wage rate is $4.5, we can see from the table that at 2 units of labor, the VMP is $3.60. At 3 units of labor, the VMP is $5.40. At 4 units of labor, the VMP is $6.30. At 5 units of labor, the VMP is $6.00.

Since the wage rate of $4.5 is less than the VMP at any level of labor, the firm will not choose to employ any workers. Therefore, the correct answer is 0.

User Octy
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Final answer:

In a perfectly competitive labor market, the firm will hire workers until the wage rate equals the marginal revenue product of labor. Based on the given data, the firm will hire 3 workers because the MRP for the fourth worker is less than the wage rate.

Step-by-step explanation:

In a perfectly competitive labor market, a firm will hire workers up to the point where the wage rate equals the marginal revenue product (MRP) of labor. To calculate the MRP, we need to determine the marginal product (MP) of labor and multiply it by the product price for each level of labor employed. Here's the calculation for each level:

  • 1 labor unit: MP of 15; $2.20 price; MRP = 15 * $2.20 = $33
  • 2 labor units: MP of 13 (28-15); $2.00 price; MRP = 13 * $2.00 = $26
  • 3 labor units: MP of 11 (39-28); $1.80 price; MRP = 11 * $1.80 = $19.80
  • 4 labor units: MP of 9 (48-39); $1.60 price; MRP = 9 * $1.60 = $14.40
  • 5 labor units: MP of 7 (55-48); $1.40 price; MRP = 7 * $1.40 = $9.80
  • 6 labor units: MP of 5 (60-55); $1.20 price; MRP = 5 * $1.20 = $6

Given the wage rate of $4.5, the firm will hire workers as long as their MRP is equal to or greater than the wage rate. Therefore, the firm will stop hiring after the 3rd worker because the MRP for the 4th worker ($14.40) is below the wage rate of $4.5. The firm maximizes profit by employing 3 workers.

User DRAX
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