K_Smith_Calculating MRPs for PerfectCompetition.docx -...

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Calculating MRPs for Perfect and Imperfect Competition1.Suppose Firm A sells its output in a perfectly competitive market at a price of $10 per unit. The firm also hires its labor in a perfectly competitive market at a wage rate of $200 per laborer. Complete the table for MPL1and MRP1# of LaborersTotal ProductMPL1MRP1MRP212020$200$15026040$400$30039535$350$262.50412833$330$247.50515325$250$187.50616815$150$112.5071735$50$37.508170-3$-30$-22.50a.What is the maximum wage the firm would be willing to pay laborer #4? .
b.At a wage of $200 per day, how many laborers will the firm hire?
c.Suppose, due to a lack of popularity, the price of the good drops to $7.50 per unit. Calculate the new values for marginal revenue product for the MRP2column. d.Given the change in Part C, how many laborers will the firm hire at a wage rate of $200 per day? Explain how the change in labor demand reflects the concept of derived demand.

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