Question

 XYZ Co. operates in a competitive market. Its Total Product (Q) is given as Q=f(L)= 2L, 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

The short-run demand curve is given by $MP_L=w/p=w$ which is obtained by dividing the nominal demand curve by the product price, p.

$MRP_L=w$

$MP_L\times P=w$

$MP_L=2L$

$P=100$

$W=20$

$2L\times 100=20$

$200L=20$

$L=0.1$

$Q=2L=2\times 0.1=0.2$

Labor$=0.2$