1.Suppose a firm’s hourly marginal product of labor is given by MPN = A (200 – N)

Question

1. Suppose a firm’s hourly marginal product of labor is given by MPN = A (200 – N)

a) If A = 0.2 and the real wage rate is $10 per hour, how much labor will the firm want to hire?

b) Suppose the real wage rate rises to $20 per hour. How much labor will the firm want to hire?

c) With the real wage rate at $10 per hour, how much labor will the firm want to hire if A rises to 0.5?

Answer 1

To find the optimum amount of labor, we use MPN = real wage rate

A. 0.2( 200 - N ) = 10

40 - .2N = 10

-.2N = -30

Divide both sides by -.2

N = 150

B. with wage at $20

0.2 ( 200 - N ) = 20

40 - .2N = 20

-.2N = -20

Now Divide both sides by -.2

N = 100

C. 0.5(200 - N) = 10

100 - .5N = 10

-.5N = -90

Divide both sides by -.5

N = 180