Question

(10 pts) Suppose this firm sells widgets in a perfectly competitive output market and the current price of widgets is, P=$1.50. Determine the firm’s VMPL and fill out the column.

Hint: Just a reminder that VMPL is the value of the marginal product of labor. The VMPL is just a variation of MRPL, in the specific case of perfect competition in the product market. We know that MRPL= (MR x MPPL), but if the firm is a perfect competitor in the product market then (MR=P)—think of the firm’s perfectly elastic product demand. Therefore, in perfect competition (MR x MPPL) = (P x MPPL) and we call that the value of the marginal product of labor.

TP= output, or total product

MPPL= marginal physical product of labor

VMPL= value of the marginal product of labor

MRPL= marginal revenue product of labor

Table 1

Labor

TP

MPPL

VMPL

TP= output, or total product

MPPL= marginal physical product of labor

VMPL= value of the marginal product of labor

MRPL= marginal revenue product of labor

Table 1
Labor	TP	MPPL	VMPL	MRPL
0	0
1	8
2	18
3	29
4	39
5	47
6	52
7	53

Answer 1

Marginal physical product of labor is the difference between total product of 1 additional labor unit and the total product of all previous labor units. VMPPL is the price x MPPL. Similarly, MRP = MR or price (in perfect competition) x MPPL

For L = 4, MPPL = TP of 4 - TP of 3 = 39 - 29 = 10

Labor	TP	MPPL	VMPL	MRPL
0	0
1	8	8	12	12
2	18	10	15	15
3	29	11	16.5	16.5
4	39	10	15	15
5	47	8	12	12
6	52	5	7.5	7.5
7	53	1	1.5	1.5