Labor Demand Data Labor Supply Data Employment Total Product Product Price Employment Wage Rate 0 0...

Labor Demand Data			Labor Supply Data
Employment	Total Product	Product Price	Employment	Wage Rate
0	0	$2.20	0	--
1	15	2.00	1	$1.00
2	28	1.80	2	2.00
3	39	1.60	3	3.00
4	48	1.40	4	4.00
5	55	1.20	5	5.00
6	60	1.00	6	6.00

The table shows labor demand data on the left and labor supply data on the right. What will be the profit-maximizing selling price of the product?

Multiple Choice

$1.40.
$1.60.
$1.80.
$2.00.

Expert Solution

ANSWER:

Profit when employment is 1 = total product * product price - no of emplyed people * wage rate = 15 * 2 - 1 * 1 = 30 - 1 = 29

Profit when employment is 2 = total product * product price - no of emplyed people * wage rate = 28 * 1.40 - 2 * 2 = 50.4 - 4 = 46.4

Profit when employment is 3 = total product * product price - no of emplyed people * wage rate = 39 * 1.6 - 3 * 3 = 62.4 - 9 = 53.4

Profit when employment is 4 = total product * product price - no of emplyed people * wage rate = 48 * 1.4 - 4 * 4 = 67.2 - 16 = 51.2

Profit when employment is 5 = total product * product price - no of emplyed people * wage rate = 55 * 1.2 - 5 * 5 = 66 - 25 = 41

Profit when employment is 6 = total product * product price - no of emplyed people * wage rate = 60 * 1 - 6 * 6 = 60 - 36 = 24

since the profit is maximized when employment at 3 and the price at that point is $1.60

so the correct answer is option b.

Rahul Sunny answered 1 year ago

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