In the short run, a competitive firm has a production function, Q=f(L) = 2.6667L. The output price is $8 per unit and the wage is $5 per hour. Find the short- run labor demand curve of the firm.
Answer:
Given:
Q = f(L) = 2.6667L0.75
We know;
MRPL = MR MPL = w
MR = P = 8
W = 5
Then;
MPL = = 2.000025L-0.25
MRPL = 8 2.000025L-0.25 = 16.0002L-0.25
And;
16.0002L-0.25 = w
16.0002L-0.25 = 5
= 5
16.0002 = 5L0.25
Therefore;
L = 104.86
The short-run labor demand curve of the firm is
= 104.86
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