Reference no: EM13451984
Consider a firm that has the following relationship between labor and output, i.e., a production function. Along this production function, we hold land, capital (K) and technology (total factor productivity) fixed. Fill in the following table.
TABLE 1
|
L
|
Q
|
MPL
|
MRP
|
Marginal Profit
|
Total Profit
|
|
0
|
0
|
-
|
-
|
-
|
0
|
|
1
|
8
|
|
|
|
|
|
2
|
20
|
|
|
|
|
|
3
|
28
|
|
|
|
|
|
4
|
35
|
|
|
|
|
|
5
|
41
|
|
|
|
|
|
6
|
45
|
|
|
|
|
The current wage is $150 and the price of output (Q) = $20.
i. The profit maximizing output is _______.
ii. The profit maximizing level of labor input is ________ workers.
iii. The maximum profit for this firm is __________.
iv. What is the marginal revenue product of the 6th worker? ___________
b. Draw the production function associated with the table above. Note, labor (L) is the variable on the horizontal axis and output (Q) is the variable on the vertical axis and locate this initial point as point A.
c. Now draw the W / MRP labor market diagram (associated with Table 1 above) as we did in lecture being sure to be clear on the areas that represent labor costs, MRP, and the marginal profit or loss - use the "smoothed out version" rather than the barchart version (use different colors if at all possible). You will need to draw a total of three of these 'initial conditions W / MRP labor market' diagrams (point A).