Neoclassical firm theory, taught as part of your intermediate microeconomic course, implies that when a firm is profit maximizing, they will hire labor up to the point where the marginal revenue product of the extra worker is equal to the marginal cost. Using your understanding of neoclassical firm theory and your understanding of labor markets in sports, describe as many reasons as you can that explain why MRP = MC is unlikely to be true for most athletes in professional team sports.
Neoclassical firm theory, taught as part of your intermediate microeconomic course, implies that when a firm is profit maximizing, they will hire labor up to the point where the marginal revenue product of the extra worker is equal to the marginal cost. Using your understanding of neoclassical firm theory and your understanding of labor markets in sports, describe as many reasons as you can that explain why MRP = MC is unlikely to be true for most athletes in professional team sports.
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Assume that the firm only uses labor as a resource in production and is hiring workers in a purely competitive labor market. In other words, the firm can hire as many workers as it wishes without affecting the equilibrium wage rate.
Units of Labor (L) |
Total Product (Q) |
Product Price (P) |
Total Revenue (TR) |
Marginal Revenue Product (MRP) |
0 |
0 |
$2.20 |
$0 |
--- |
1 |
15 |
$2.00 |
$30 |
$30 |
2 |
28 |
$1.80 |
Ā | Ā |
3 |
39 |
$1.60 |
Ā | Ā |
4 |
48 |
$1.40 |
Ā | Ā |
5 |
55 |
$1.20 |
Ā | Ā |
6 |
60 |
$1.10 |
Ā | Ā |
a.Ā Is the firmĀ sellingĀ its product in a purely competitive market or an imperfectly competitive market?
b. Fill out both the TR and MRP columns with the correct values.
c. Suppose the wage rate is $11.00 per worker. How many workers should be employed, in order to maximize profits?
d.Ā If the firm hires the optimum number of workers, what is its total profit?