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

$\begin{array}{cc}
\begin{array}{cc}
\underline{\text { Labor }} & \underline{\text { Output }} \
0 & 0 \
1 & 15 \
2 & 29 \
3 & 42 \
4 & 54 \
5 & 65
\end{array}
\begin{array}{r}
\underline{\text { Price }} \
\$ 2.20 \
2.00 \
1.80 \
1.60 \
1.40 \
1.20
\end{array}
\end{array}$

-Rather than the product demand schedule shown in the table,suppose this firm sold its output competitively for a price of $2.00.In this case,how many workers will this profit-maximizing firm choose to employ at a wage of $25.00?
A)2
B)3.
C)4
D)5

Question

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

$\begin{array}{cc}
\begin{array}{cc}
\underline{\text { Labor }} & \underline{\text { Output }} \
0 & 0 \
1 & 15 \
2 & 29 \
3 & 42 \
4 & 54 \
5 & 65
\end{array}
\begin{array}{r}
\underline{\text { Price }} \
\$ 2.20 \
2.00 \
1.80 \
1.60 \
1.40 \
1.20
\end{array}
\end{array}$

-Rather than the product demand schedule shown in the table,suppose this firm sold its output competitively for a price of $2.00.In this case,how many workers will this profit-maximizing firm choose to employ at a wage of $25.00?
A)2
B)3.
C)4
D)5

Quizplus · Accepted Answer

To determine the profit-maximizing level of employment, the firm should hire workers up to the point where the value of the marginal product of labor (VMPL) equals the wage rate ($25.00). At a competitive output price of $2.00, the VMPL schedule is:
$$\begin{array}{cc}
\begin{array}{cc}
\underline{	ext { Labor }} & \underline{	ext { VMPL }} \
0 & - \
1 & \$ 13.00 \
2 & \$ 14.50 \
3 & \$ 13.00 \
4 & \$ 11.00 \
5 & \$ 9.00
\end{array}
\begin{array}{r}
\underline{	ext { Wage }} \
- \
\$ 25.00 \
25.00 \
25.00 \
25.00 \
25.00
\end{array}
\end{array}$$
At a wage rate of $25.00, the firm would hire 4 workers since the VMPL of the 4th worker is just equal to the wage rate and hiring an additional worker would result in a negative profit. Therefore, the answer is choice (C) 4.

Questions Are Based on the Data in the Following