A firm that is perfectly competitive in product and factor markets has the following production function:
L Q
0 0
1 7
2 15
3 22
4 28
5 33
6 37
7 40
8 42
9 43
a. Calculate and graph the Marginal Revenue Product (MRP) for each unit of labor when the price of the firm's output is $5. Why does the MRP curve have a negative slope?
b. How many units of labor will the firm hire if the wage for each worker is $35 and the product price is $5? Why?
c. If the wage falls to $25 per worker, how many workers will the firm now hire? Why? Show these results in your graph in part a.
Suppose that the price of the firm's product increases to $6 due to an increase in market demand for the firm's product.
d. How many workers will the firm now hire if the wage for each worker is $30? Why? Show this result in a separate graph.