Suppose that a firm has the following production function. Also suppose that the only costs the firm experiences are the costs associated with their labor. Workers 0 1 2 3 4 5 6 7 8 9 10 Output per hour 0 12 23 33 42 50 57 63 68 72 75 a. ( Suppose that the firm is perfectly competitive in both the market for their output and their market for labor. Suppose that the equilibrium price of their product is $10 and that the equilibrium wage for labor is $40/hr. Determine the profit maximizing quantity of labor for the firm to hire. b. ) Instead, suppose that the firm holds monopsony power in the market for labor and faces the labor supply curve below. Continue to assume that the firm is perfectly competitive in the market for their output where the equilibrium price is $10 and that their production function is as defined above. Determine the profit maximizing quantity and wage for their labor. (Hint: to calculate the marginal cost of labor, first calculate total cost at each level of employment (workers wage), then calculate marginal cost per usual i.e. for each additional worker how do costs change?)

Suppose that a firm has the following production function. Also suppose that the only costs the firm experiences are the costs associated with their labor. Workers 0 1 2 3 4 5 6 7 8 9 10 Output per hour 0 12 23 33 42 50 57 63 68 72 75 a. ( Suppose that the firm is perfectly competitive in both the market for their output and their market for labor. Suppose that the equilibrium price of their product is $10 and that the equilibrium wage for labor is $40/hr. Determine the profit maximizing quantity of labor for the firm to hire. b. ) Instead, suppose that the firm holds monopsony power in the market for labor and faces the labor supply curve below. Continue to assume that the firm is perfectly competitive in the market for their output where the equilibrium price is $10 and that their production function is as defined above. Determine the profit maximizing quantity and wage for their labor. (Hint: to calculate the marginal cost of labor, first calculate total cost at each level of employment (workers wage), then calculate marginal cost per usual i.e. for each additional worker how do costs change?)

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter11: Profit Maximization

Section: Chapter Questions

Problem 11.9P

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