How many workers will the firm hire if the market wage rate is $28.75?

Complete the following labor demand table for a firm that is hiring labor competitively and selling its product in a competitive market.

Units of labor	Total product	Marginal product	Product price	Total revenue	Marginal revenue product


0 1 2 3 4 5 6	0 21 38 53 64 71 75		$3.75 3.75 3.75 3.75 3.75 3.75 3.75

Complete the table above and Answer the following Question:

How many workers will the firm hire if the market wage rate is $28.75? Explain why the firm will not hire a larger or smaller number of units of labor at each of these wage rates.

Expert Solution

L	TP	MP	Price	TR	MRP
0	0		3.75
1	21	21	3.75	78.75	78.75
2	38	17	3.75	142.5	63.75
3	53	15	3.75	198.75	56.25
4	64	11	3.75	240	41.25
5	71	7	3.75	266.25	26.25
6	75	4	3.75	281.25	15

MP (nth unit) = TP (n units) - TP ((n - 1) units)

TR = P x TP

MRP = P x MP

Wage rate = $ 28.75

Workers hired = 4 (4th worker yields MRP > wage i.e. marginal revenue by addition of 4th worker > wage rate, workers are added to a point where MRP >= wage rate so as to maximize profit)

Rahul Sunny answered 2 years ago

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