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microbook_3e-page126 - Calculate the marginal product of...

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Short answer questions on perfect competition x Economists often talk about firms that operate in a perfectly competitive industry. Describe the three characteristics of a perfectly competitive industry. x Discuss the three reasons why economists assume that firms in a perfectly competitive industry make zero profit in the long run. Ƈ Ƈ Ƈ Short answer questions on profit-maximization You are given the following data on a profit- maximizing firm’s production in the short-run (its capital stock is fixed). The quantity of output that it produces (Q) depends on the amount of capital (K) and labor (L) it employs. The firm must pay rent on its capital stock at a rate of about $2 per unit, so its total rent bill is $1000. It also must pay a wage rate of $5 per unit of labor.
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Unformatted text preview: Calculate the marginal product of labor for each output level. (NB: the marginal product of labor is the change in output per unit change in labor). Q K L MPL 309.02 500 73 -- 310.08 500 74 311.13 500 75 312.17 500 76 313.20 500 77 314.22 500 78 315.23 500 79 316.23 500 80 317.22 500 81 318.20 500 82 Up until what point does a profit-maximizing firm hire labor? (Hint: the answer is in Lecture 6) If the firm can sell all of its output on a perfectly competitive market at a price of $5 per unit, then how much should it produce? How many units of labor should it employ? Using your answers to the previous two questions, what will the firm’s profit be? Could it maintain this profit in the long-run? Why or why not? Page 126...
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