A firm with a production function given by ?=170?q=170N, where ?q is the quantity produced and...

A firm with a production function given by ?=170?q=170N, where ?q is the quantity produced and ?N is the number of workers hired. The firm sells its product in a competitive market, and the market price of its good is ?=1p=1.

The firm, however, is the only employer in the town where it operates, and hence it does not take the cost of labour as given. The inverse labour supply function in this town is given by ?=50+0.02?2w=50+0.02N2.

(a) Write an equation for firm profits as a function of ?N and solve for the profit-maximizing choice of ?N.

(b) What will the wage be in the town where the employer operates?

(c) Is the wage equal to, greater than, or less than the marginal product of labour? Explain intuitively why this is the case in this setting.

Expert Solution

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Rahul Sunny answered 6 months ago

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