The first 3 columns of the following table show data for a representative firm in an industry.The last 3 columns show the market demand and supply for the type of labour employed by this firm.

-Refer to the information above to answer this question.What is the equilibrium wage rate if the firm maximizes its profits?
A)$5.
B)$12.
C)$18.
D)$20.
E)Cannot be determined.

Question

The first 3 columns of the following table show data for a representative firm in an industry.The last 3 columns show the market demand and supply for the type of labour employed by this firm.
 
-Refer to the information above to answer this question.What is the equilibrium wage rate if the firm maximizes its profits?
A)$5. 
B)$12. 
C)$18. 
D)$20. 
E)Cannot be determined.

Quizplus · Accepted Answer

The equilibrium wage rate is where the market demand equals the market supply. At a wage rate of $20, the firm would demand 200 units of labor and the market would supply 200 units of labor. At any other wage rate, there would be a surplus or a shortage of labor. Given the firm's production function and the market demand and supply, the profit-maximizing level of employment is where the marginal revenue product of labor equals the wage rate. At a wage rate of $20, the marginal revenue product of labor is $40, and the firm would hire 5 units of labor, which maximizes its profits. Therefore, the equilibrium wage rate is $20.

The First 3 Columns of the Following Table Show Data