In Problem 1, the production function is given by F(L) . Suppose that the cost per unit of labor is $12 and the price of output is 12, how many units of labor will the firm hire?
A) 32
B) 192
C) 64
D) 128
E) None of the above.

Question

In Problem 1, the production function is given by F(L)  . Suppose that the cost per unit of labor is $12 and the price of output is 12, how many units of labor will the firm hire?
A) 32 
B) 192 
C) 64 
D) 128 
E) None of the above.

Quizplus · Accepted Answer

To maximize profit, the firm should hire labor until the marginal product of labor (MPL) equals the cost per unit of labor (w). In this case, MPL = 66e^(1/11L) and w = $12.

Setting MPL = w, we can solve for L:

66e^(1/11L) = 12

e^(1/11L) = 12/66

Taking the natural logarithm of both sides:

1/11L = ln(12/66)

L = 11ln(12/66) ≈ 64

Therefore, the firm should hire approximately 64 units of labor.

In Problem 1, the Production Function Is Given by F(L)