Answer to Question #260503 in Microeconomics for Emmanuel Zida

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

When you divide the nominal demand by the product price p$\times$ MRP_L=w you will find the short-run labor demand curve.

It is given by MP_L=W/p=w

MP_L $\times$ P = w

MP_L = 3L

P = 150

W = 25

3L $\times$ 150 = 25

450L = 25

L = 0.056

Q = 3L = 3 $\times$ 0.056 = 0.168

The firm will hire labor=0.168