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 D₂.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 D₂.If the wage rate rises from $100 to $130,the firm will reduce the quantity of labor employed by _____ unit(s) .

Quizplus · Accepted Answer

The firm will reduce labor by 1 unit because the marginal revenue product (MRP) of labor at 5 units is $97.50, which is less than the new wage rate of $130. At 4 units, the MRP is $105, which is still less than $130, so the firm will employ 3 units where the MRP is $127.50, which is closest to the wage rate.

Questions Are Based on the Data in the Following