The production function for a competitive firm is Q = K^.5L^.5.The firm sells its output at a price of $10, and can hire labor at a wage of $5.Capital is fixed at one unit.The profit-maximizing quantity of labor is A)2/5. B)1. C)10. D)none of the statements associated with this question are correct.

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Quizplus · Accepted Answer

The firm maximizes profit where the marginal product of labor (MPL) equals the wage rate divided by the price of output. MPL = 0.5K^0.5L^-0.5. Setting MPL = 5/10 and solving for L with K=1 gives L=1.

The Production Function for a Competitive Firm Is Q =