Answer to Question #220032 in Microeconomics for Khushi

Question

You are given the following schedule for the production of pens by a firm
Labor Total Product
0 0
1 20
2 50
3 70
4 80
5 85
6 82
If pen sells for Rs 3 per unit and workers can be hired in a competitive labor market for Rs30
per day, how many workers should be hired? Explain your answers clearly.

Answer 1

The total product is the total product or the total output by the firm. The total product would be the total product which would result in the total output because of the total change in labor. The marginal product would be equal to the wage for the number of labors to be hired.

The workers would be hired for maximising profits given the wage. The number of workers would depend on the marginal product which measures the change in the level or quantity of labor.

The marginal product of labor would be the change in the total labor product to the ratio of the quantity of labor. The marginal product of labor would result in the change in the quantity of output due to the incremental unit of labor.

The marginal product of labor would determine the quantity of labor. The marginal product of labor would cause change in output due to change in labor.

The wage for the labor is $30 which matches with the marginal product of labor at 2 units of labor. Thus,for the competitive market the quantity of labor hired would be equal to the condition when the real wage would be equal to the marginal product of labor. Thus, for 4 workers the real wage which the wage divided by rice level which is $10 would be the equilibrium.

Hence, the 4 workers would be hired.