Question
If the price of labor is $25, how many units of labor should be employed? Labor...
| If the price of labor is $25, how many units of labor should be employed? | |||||||
| Labor | Output | MP | Price | Total Revenue | MRP | MRC | |
| 0 | 0 | ** | 4 | 4 | ** | ** | |
| 1 | 12 | 12 | 4 | 25 | |||
| 2 | 22 | 10 | 4 | 25 | |||
| 3 | 30 | 8 | 4 | 25 | |||
| 4 | 36 | 6 | 4 | 25 | |||
| 5 | 40 | 4 | 4 | 25 | |||
| 6 | 42 | 2 | 4 | 25 | |||
Homework Answers
Answer #1
Total Revenue = Output * Price of product
Marginal Revenue Product (MRP) = MP * Price
A firm should hire labour until the point where the marginal revenue product(MRP) is greater than or equivalent to the price of labour because the firm will only hire additional labour if the value of the output produced by him is greater than the wages paid to him by the firm otherwise it will cause loss to the firm. So, from the above table, we can conclude that the firm should hire only 3 labours as MRP(32) > Price of labour (25) and after 3rd labour, MRP is less than 25.
Hence, the firm should hire only 3 labours.
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