Answer to Question #285594 in Microeconomics for Liza

Question

1. A competitive firm's production function is q=7LK. What is its marginal revenue prod uct of labor? (Hint: MPL = 2K)

2. What effect does an ad valorem tax of a on the revenue of a competitive firm have on that firm's demand for labor?

Answer 1

Solution:

1.). Marginal revenue product of labor (MRPL) = MPL x MR

MPL = $\frac{\partial Q} {\partial L}$ = 7K

MRPL = 7K $\times$ MR = 7KMR

 

2.). The as valorem tax will shift the supply curve to left,left thus decreasing the demand for labor in the market.