ECO101H1 Lecture 23: Lecture 23-Workers are Paid Their VMP

Below is the production scheduale for gizmos. It shows the relationship between the number of workers hired (L) and output (Q). In addition, if the firm want to hire more workers it has to raise the wage rate that must be paid

L Q Wage Rate
0 0 0
1 50 60
2 105 64
3 166 68
4 224 72
5 278 76
6 328 80
7 375 84
8 418 88
9 457 92
10 492 96
11 522 100
12 548 104
1) What is the marginal product of the 6th worker?
2) What is the average product of 9 workers?
3) What is the marginal cost of hiring the 7th worker?
4) At what quantity of workers is the average product a maximum? What is the maximum?
5) If I could sell all of the ouput I want at a price of $4.00 how many workers should I hire if I am to maximize profits? What are my maximum profits?
6) Now assume that I can only sell a unit of ouput for $3.00. How many workers should I now hire if I am to maximize profits? What are my maximum profits?

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.

a. Is the firm selling 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. If the firm hires the optimum number of workers, what is its total profit?

On the following table of weekly operations, what quantity of workers should the firm hire to maximize profits if the weekly wage for these workers is $510?

Labor Output Price (of output)

15      200     $10

16      300      $9

17      400      $8

18      475      $7

19      525      $6

a. 15

b. 16

c. 17

d. 18

e. 19