Question

Problem:

Jim owns a music school teaching guitar. The school has a small space and thus any additional teacher adds less to total production (MP is diminishing). Each guitar lesson costs $25/hour. Here is Jim's Production Function:

Labor     Q (quantity of lessons)

0                  0

1                  10  

2                  17

3                  23

4                  28

5                  32

6                  35   

7                  37

8                  38

The daily wage rate for the teachers are: $75 , $100 , $125 , $150 , $175 , and $200.

B) If the price for guitar lessons goes up to $35/hour, Jim's demand for Labor will change. Find his new Labor demand at each of the same wage rates above.

Answer 1

The first table shows the value of MP of labor at when P=25 and when P=35

The second table shows the number of labor demanded at each wage rate.

The labor demand will depend upon where price of the labor which is the wage rate W=Value of Marginal Product

For example As we can from the second table that labor demanded at wage = 100 is 5 when P=25/hour and is 6 when P=35/hour because the MRP in the first table is 100 at L=5 when P=25 and MRP = 105 at L=6 when P=35

Similarly, the table shows the labor demanded at different wage rates.