In the short run, a tool manufacturer has a fixed amount of capital. Labor is a variable input. The cost and output structure that the firm faces is depicted in the table below. Assume the product price is $2.
Calculate the marginal revenue product and the marginal resource cost, and then complete the table.
Instructions: Enter your answers as whole numbers.
|
Marginal revenue product is given by Marginal revenue(MR) * Marginal product of labor(MPL)
Since price is fixed at $2 => MR = $2
Marginal resource cost = (Total labor cost)n - (total labor cost)n-1
using this we get,
At equlibrium,
MRPL = MC
By this rule we see that at labor = 11, MRPL = MC = 36
Hence equilibrium Labor = 11
& equilibrium wage rate is $16
Get Answers For Free
Most questions answered within 1 hours.