Question

XYZ Co. operates in a competitive market. Its Total Product (Q) is given as Q=f(L)= 3L, 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=₵25 and P=₵150?

Answer 1

The short run demand curve is obtained by dividing the nominal demand curve by the product price:

$MP_L=\frac{W}{p}=w$

$MP_L=3L$

$P=150$

$W=25$

$MP_L\times p=w$

$3L\times150=25$

$L=0.056$

$Q=f(L) =3L$

$\implies Q=3(0.056)=0.168$

0.168 represents the quantity of labor that the firm will hire.