TABLE OF CONTENTS

Question 1 of 6

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You must read each slide, and complete any questions on the slide, in sequence.

The following chart gives the output (Q) produced by a firm given the number of labor inputs (L). The price of the product is $6.

L Q MPL P MRPL
0 0 6
1 12
2 28
3 40
4 48
5 54
6 57
7 59
8 60
Table

Fill in the column for MPL (the marginal product of labor).

3
MPL = the change in Q as L increases by a unit. For example, if Q changes from 0 to 12 when one worker is added, 12 – 0 = 12.

Fill in the column for P (the product price).

L Q MPL P MRPL
0 0 6
1 12 12
2 28 16
3 40 12
4 48 8
5 54 6
6 57 3
7 59 2
8 60 1
Table
3
P is always $6 in this question and does not depend on labor input, quantity produced, or any other variable.

Fill in the column for MRPL (the marginal revenue product of labor).

L Q MPL P MRPL
0 0 6
1 12 12 6
2 28 16 6
3 40 12 6
4 48 8 6
5 54 6 6
6 57 3 6
7 59 2 6
8 60 1 6
Table
3
MRPL = MPL x P. For example, if MPL = 12, and P = $6, then MRPL = 12 x $6.

L Q MPL P MRPL
0 0 6
1 12 12 6 72
2 28 16 6 96
3 40 12 6 72
4 48 8 6 48
5 54 6 6 36
6 57 3 6 18
7 59 2 6 12
8 60 1 6 6
Table

How many workers should this firm in a perfectly competitive market employ if the wage is $36?

3
Firms in perfectly competitive markets hire up to the point where marginal cost equals marginal benefit, or wage = MRPL. MRPL = $36 where L = 5.

L Q MPL P MRPL
0 0 6
1 12 12 6 72
2 28 16 6 96
3 40 12 6 72
4 48 8 6 48
5 54 6 6 36
6 57 3 6 18
7 59 2 6 12
8 60 1 6 6
Table

How many workers should this firm employ in a perfectly competitive market if the wage is $18?

3
Firms in perfectly competitive markets hire up to the point where marginal cost equals marginal benefit, or wage = MRPL. MRPL = $18 where L = 6.

In general, the quantity of labor demanded can be expected to if wages decrease.

3
The previous two questions show that equilibrium L increases when the wage is lower. The concept is similar to a traditional demand curve: Q increases if P decreases.