Question

Janko Products produces and sells beach bags in a perfectly competitive market at a price of $8. They hire labor in a perfectly competitive market at an hourly wage of $9. The relationship between the quantity of labor hired and the amount of beach bags produced per hour is shown below:

Labor	Quantity	MPL	VMPL	Wage	Marginal Profit
0	0
1	3
2	7
3	10
4	12
5	13

Complete the table, how much labor should the firm hire?

Answer 1

Janko Products produces and sells beach bags in a perfectly competitive market at a price of $8. They hire labor in a perfectly competitive market at an hourly wage of $9.

Before filling the table, let us define MPL and VMPL.

Now, MPL or Marginal Productivity of Labor is defines as, the amount of extra output produced for hiring one more labor.

And, VMPL=P×MPL i.e. Value of Marginal Productivity. Here we will put P=$8.

We will construct another column called Marginal Profit i.e. (VMPL - Wage).

Labor	Quantity	MPL	VMPL	Wage	Marginal Profit
0	0	0	0	0	0
1	3	3	24	9	15
2	7	4	32	9	23
3	10	3	24	9	15
4	12	2	16	9	7
5	13	1	8	9	-1

The table is completed.

Now, the firm will produce where the Marginal Profit is maximum. Here we can see, the Marginal Profit is maximum when L=2.

Hence, the firm will hire 2 labors.

Hope the solution is clear to you my friend.