Answer to Question #250595 in Microeconomics for tastic

Question

XYZ Co. operates in a competitive market. Its marginal product of labor is 1/L, and it takes the

wage and price as given. Derive the firm's short-run demand for labor as a function of w and p.

How much labor will the firm hire if W=₵20 and P=₵100?

Answer 1

(i)

Assuming:

Price of product =p.

Wage = w.

The input demand for labor is derived as:

$L=f (w,p)$

(ii)

$MP_L=\frac{W}{P}$

$\frac {1}{L}=\frac{W}{P}$

$\frac{1}{L}=\frac{20}{100}$

$0.2L=1$

$L=5.$