determine the wage rate , Managerial Economics

Assignment Help:

Northern Lumber operates a large lumber-processing mill in a small town in Washington State.  It is one of the larger lumber producers in the region and has some market power in the sale of that product.  A recent consulting study has indicated that the price elasticity of demand for the firm's product is about -3.0.  Also, Northern is the dominant employer in the local labor market, and effectively can be considered as a monopsonist in the purchase of labor.  The firm's labor demand (i.e. marginal revenue product) function is;
      MRP = 1 000 - 2L

where L is the number of workers.  Because of its size relative to the labor supply in the area, Northern faces an upward sloping labor supply function,
      w = 50 + 0.025L and ME = 50 + 0.050L

where w is the daily wage rate and ME is the marginal expenditure on labor.

Once the firm determines the optimal rate of labor input and the wage rate, the rate of output is determined.  The firm uses a cost-plus pricing formula that includes the price elasticity of demand as a determinant in setting product price.  The same study indicated that average cost is about RM300 per unit (1 000 board feet) of lumber.

Requirements

1.    Determine the amount of labor that the firm should employ in order to maximize profit.

2.    Determine the wage rate the firm will have to pay.

3.    What price will the firm charge per unit of output?


Related Discussions:- determine the wage rate

Marginal revenue, Marginal Revenue Marginal revenue is the additional r...

Marginal Revenue Marginal revenue is the additional revenue an organization receives resulting from the sale of one more item of output. Marginal revenue is calculated by takin

The monetary account, THE MONETARY ACCOUNT Also called official financ...

THE MONETARY ACCOUNT Also called official financing, this comprises the financial transactions of the government (handled by the central bank) needed to offset any net outflow

Measuring point elasticity on a linear demand curve, Measuring Point Elasti...

Measuring Point Elasticity on a Linear Demand Curve To explain the measurement of point elasticity of a linear demand curve, let's suppose that a linear demand curve is given b

Discount rate (bank rate), Discount Rate (Bank Rate) This is the rate ...

Discount Rate (Bank Rate) This is the rate on central bank advances and is also called official discount rate or "minimum lending rate".  When commercial banks find themselves

Research methods, measurement and scaling techniques in business research

measurement and scaling techniques in business research

Bank rate , Bank Rate Bank rate is the rate at which the central bank ...

Bank Rate Bank rate is the rate at which the central bank gives loans to the commercial banks against the security of government and other approved first class securities. In

Relevance of the law of diminishing returns, Relevance of The Law of Dimini...

Relevance of The Law of Diminishing Returns The law of diminishing returns is important in that it is seen to operate in practical situations where its conditions are fulfille

Indifference curves, Indifference curves In order to explain indiffere...

Indifference curves In order to explain indifference curves, we will again make the simplifying assumption that the consumer buys two goods, x and y. The table below gives

Demand-pull inflation, Demand-pull inflation is when aggregate demand exce...

Demand-pull inflation is when aggregate demand exceeds the value of output (measured in constant prices) at full employment.  The excess demand of goods and services cannot be met

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd