(a) To compute the total labor costs, we will multiply the number of labor units (column 1) by the wage rate (column 3) and fill in the values in column 4. To calculate the marginal labor cost, we will find the difference between the total labor costs at each level of employment and fill in the values in column 5. Here's the completed table:
(1) (2) (3) (4) (5)
Number of MRP Wage Total Marginal
labor units of labor rate labor cost labor cost
0
1 $18 $6 $6 $6
2 16 7 $14 $8
3 14 8 $24 $10
4 12 9 $36 $12
5 10 10 $50 $14
6 8 11 $66 $16
7 6 12 $84 $18
8 4 13 $104 $20
(b) The firm will hire labor units until the marginal labor cost (MLC) is equal to or greater than the marginal revenue product (MRP). In this case, the firm will hire 4 units of labor because, at this level, MRP ($12) is equal to MLC ($12). The wage rate at this level of employment will be $9.
(c) In a competitive labor market, the wage rate equals the MRP. In this case, the MRP for hiring four units of labor is $12 (column 2). So, in a competitive labor market, the firm would still hire 4 units of labor, but the wage rate would be $12 instead of $9.
2. In the table below, assume a monopsonist has the marginal-revenue-product schedule for a particular type of labor given in columns 1 and 2 and that the supply schedule for labor is that given in columns 1 and 3.
(1) (2) (3) (4) (5)
Number of MRP Wage Total Marginal
labor units of labor rate labor cost labor cost
0
1 $18 $ 6 $_____ $_____
2 16 7 _____ _____
3 14 8 _____ _____
4 12 9 _____ _____
5 10 10 _____ _____
6 8 11 _____ _____
7 6 12 _____ _____
8 4 13 _____ _____
(a) Compute the firm’s total labor costs at each level of employment and the marginal labor cost of each unit of labor, and enter these figures in columns 4 and 5. 8 points
(b) How many units of labor will the firm hire? What will be the wage rate? I point
(c) If this firm hired labor in a competitive labor market, what would be the wage rate and number of workers hired? 1 point
I would be so thankful for any help possible!
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