Question

Compared to perfect competition a monopoly produces output which is:

1.equal to perfect competition

2.more than perfect competition

3.less than perfect competition

4.none of the above

Suppose a firm has hired 10 workers and together they produce 1000 units. When they increase their number of hires to 20, their production rises to 1800. What is the marginal productivity of labor at this point?

1. 90 units.

2. 85 units.

3. 80 units.

4. 20 units.

Answer 1

Compared to perfect competition a monopoly produces output which is:

3.less than perfect competition

In perfect competition market the output is determined where the demand equals to supply. But in case of a monopoly market the price is determined above the marginal cost. So the output in monopoly is always less than the perfect competition market.

Suppose a firm has hired 10 workers and together they produce 1000 units. When they increase their number of hires to 20, their production rises to 1800. What is the marginal productivity of labor at this point?

3. 80 units.

For 10 workers, total output is 1000 units

For 20 workers, total output is 1800 units

Marginal Product = (1800 – 1000)/(20 – 10) = 800/10 = 80