Imagine that you own a firm that produces widgets. In order to produce widgets,
ID: 1109327 • Letter: I
Question
Imagine that you own a firm that produces widgets. In order to produce widgets, you must hire some workers. The following table tells you how many widgets you will produce (which we will call "total product" and represent with "TP") for different numbers of workers (which we will call "L” for "labor"). 123456789 TP 20 38 54 688090 98 104 108 110 110 1. If the price of a widget is $5 and the wage of a worker is S50, how many workers should you hire in order to maximize your profit? [As usual, you can find this by trying them all and calculating profit for each.] 2. If the wage were to increase to $80, how many would you hire to maximize profit? What if it were $30? Write a schedule representing this firm's demand for labor. 3. What would happen to this demand curve if the price of widgets increased? Show this on a graph.Explanation / Answer
1) Let calculate profit at each level of worker as follows:
As you can see profit is maximized at
As you can see profit is maximized by hiring 6 labors. Hence it will hire 5 labors.
2) At $80 as wage:
Firm will hore 3 labors.
At wage of $30
8 labors will be hired.
Schedule of labor demand
3) If price of widget increases, the curve will shift upward.
L TP TC = L*$50 TR=TP*$5 Profit=TR-TC 1 20 50 100 50 2 38 100 190 90 3 54 150 270 120 4 68 200 340 140 5 80 250 400 150 6 90 300 450 150 7 98 350 490 140 8 104 400 520 120 9 108 450 540 90 10 110 500 550 50 11 110 550 550 0