The following table shows the number of calculators that can be assembled per week by various numbers of workers.If the price per calculator in a perfectly competitive product market is $20,how many workers would the firm employ if the weekly wage rate is $1000?

Question

Quizplus · Accepted Answer

To determine how many workers the firm would employ at a given wage rate, we must calculate the marginal product of labor (MPL) for each level of employment. MPL is the additional output produced by each additional worker.

Number of Workers | Calculators per Week | MPL
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1                |        50           | 50
2                |       110           | 60
3                |       165           | 55
4                |       200           | 35

As we can see, MPL decreases as more workers are hired. The firm will continue to hire workers as long as the marginal revenue product (MRP) of labor (i.e. the additional revenue generated by each additional unit of labor) exceeds the wage rate. In perfect competition, MRP is equal to the product price.

To determine the MRP of labor for each level of employment, we multiply the MPL by the price:

Number of Workers | Calculators per Week | MPL  | MRP (20*$MPL)
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1                |        50           | 50   |    $1000
2                |       110           | 60   |    $1200
3                |       165           | 55   |    $1100
4                |       200           | 35   |     $700

At a wage rate of $1000, the firm will continue to hire workers as long as MRP exceeds $1000. This occurs for the first three levels of employment, but not for the fourth. Therefore, the firm would hire 3 workers.

The Following Table Shows the Number of Calculators That Can