The labor supply curve faced by a large firm in a small city is given by w = 60 + 0.08L, where L is the number of units of labor per week hired by the large firm and w is the weekly wage rate that it pays.If the firm is currently hiring 1,000 units of labor per week, then the marginal cost of a unit of labor to the firm
A)is twice the wage rate.
B)equals the wage rate.
C)equals the wage rate plus $160.
D)equals the wage rate plus $80.
E)equals the wage rate plus $240.

Question

Quizplus · Accepted Answer

The marginal cost (MC) of labor includes the wage rate plus the increase in total wages paid due to the wage increase necessary to hire additional labor. Given the labor supply curve $w = 60 + 0.08L$, the derivative with respect to L (which gives the increase in wage rate for an additional unit of labor) is 0.08. At L = 1000, the increase in total cost for one more unit of labor is $0.08 \times 1000 = $80$, in addition to the wage rate itself, making the correct answer the wage rate plus $80.

The Labor Supply Curve Faced by a Large Firm in a Small