Questions are based on the data in the following table. Assume that the labor market is perfectly competitive.

$\begin{array}{cc}\begin{array}{cc}\text { Labor } & \text { Output } \\\hline0& 0 \\1 & 15 \\2 & 29 \\3 & 42 \\4 & 54 \\5 & 65 \\6 & 75\end{array}\begin{array}{c}\text { Price }\left(D_{1}\right) \\\hline\$ 10.00 \\10.00 \\10.00 \\10.00 \\10.00 \\10.00 \\10.00 \\\end{array}\begin{array}{c}\text { Price }\left(\mathrm{D}_{2}\right) \\\hline \$ 10.00 \\9.50 \\9.00 \\8.50 \\7.50 \\6.50 \\5.50\end{array}\end{array}$
-Suppose the firm's product demand is given by the column labeled D₁.If the wage rate rises from $100 to $130,the firm will reduce the quantity of labor employed by _____ unit(s)

Question

Questions are based on the data in the following table. Assume that the labor market is perfectly competitive.

\begin{array}{cc}\begin{array}{cc}\text { Labor } & \text { Output } \\\hline0& 0 \\1 & 15 \\2 & 29 \\3 & 42 \\4 & 54 \\5 & 65 \\6 & 75\end{array}\begin{array}{c}\text { Price }\left(D_{1}\right) \\\hline\$ 10.00 \\10.00 \\10.00 \\10.00 \\10.00 \\10.00 \\10.00 \\\end{array}\begin{array}{c}\text { Price }\left(\mathrm{D}_{2}\right) \\\hline \$ 10.00 \\9.50 \\9.00 \\8.50 \\7.50 \\6.50 \\5.50\end{array}\end{array}

-Suppose the firm's product demand is given by the column labeled D₁.If the wage rate rises from $100 to $130,the firm will reduce the quantity of labor employed by _____ unit(s)

Quizplus · Accepted Answer

At a wage rate of $100, the firm employs 4 workers, who produce an output of 54 units. At this output level, the marginal revenue product of labor (MRP) is $10. When the wage rate rises to $130, the MRP of labor falls to $8.50 (as seen in the column labeled D₁). At this wage rate, the firm will only want to employ labor up to the point where the MRP equals the wage rate. This occurs at a quantity of 2 workers, who produce an output of 29 units. Therefore, the firm will reduce the quantity of labor employed by 2 units, from 4 to 2, when the wage rate rises from $100 to $130.

Questions Are Based on the Data in the Following