Question

Suppose a short-run production function is described as Q = L – (1/400)L²where L is the number of labors used each hour. The firm’s cost of hiring (additional) labor is $16 per hour, which includes all labor costs. The finished product is sold for $40 per unit of Q.

c. How many labor units(L) should the firm employ per hour if they want to maximize profit?   

L = 120

f. Suppose that the price of the product is unchanged at $40, but that the cost of hiring labor increases to $20 per hour. How many labor units (L) will the firm employ?                                                                                                  1 point

MRPL = 40(1 – L/200), MCL = wages = 20

MRPL = MCL

40(1 – L/200) = 20

1 – L/200 = .5

.5 = L/200

L = 100

g. Suppose that labor costs is again $20 and that the price received per unit of output increases to $50. How many labor units (L) will the firm now employ?                                                                                                                      1point

MRPL = 50(1 – L/200), MCL = wages = 20

MRPL = MCL

50(1 – L/200) = 20

1 – L/200 = .4

.6 = L/200

L = 120

h. In terms of the demand (curve) for labor, how would we see (what is the difference between) the changes in parts f and g?

I need help with H

Answer 1