Scenario: The Decision to Hire Labor Assume that both the product market and the labor market are perfectly competitive.The price of this firm's product is $5.The firm's total product with respect to labor is given in the table that follows.
(Scenario: The Decision to Hire Labor) Look at the scenario The Decision to Hire Labor.If this profit-maximizing firm hires two workers, what is the equilibrium wage rate in the labor market?
A)$30
B)$5
C)$13
D)$6

Question

Quizplus · Accepted Answer

The equilibrium wage rate is the wage rate that equates the quantity of labor demanded by firms to the quantity of labor supplied by workers. In this case, the firm's demand for labor is given by the marginal product of labor, which is the additional output produced by hiring one more worker. The marginal product of labor is decreasing, which means that the firm will hire fewer workers as the wage rate increases. The supply of labor is given by the number of workers who are willing and able to work at a given wage rate. In a perfectly competitive labor market, the supply of labor is perfectly elastic, which means that the number of workers who are willing and able to work at a given wage rate is infinite. Therefore, the equilibrium wage rate is the wage rate that equates the firm's demand for labor to the infinite supply of labor. In this case, the firm's demand for labor is 2 workers, and the supply of labor is infinite. Therefore, the equilibrium wage rate is the wage rate that equates the firm's demand for labor to the infinite supply of labor, which is $30.

Scenario: the Decision to Hire Labor Assume That Both the Product