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March 28, 2017

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Suppose that labor is the only input used by a perfectly competitive firm that can hire workers for $50 per
day. The firm’s production function is as follows:
Days of Labor/Units of Output:
0/0, 1/7, 2/13, 3/19, 4/25, 5/28, 6/29, 7/29

c. Compute the demand schedule showing the number of workers hired for all wages from zero to $100 a day.
How Would this be done.

e. What happens to this demand curve if the price of output rises from $10 to $12 per unit?
Wouldn't the demand curve shift downward.


for c) you need more information, you need the price of the output. Can you assume the price is $10 per unit as suggested in e.?

Assuming output can be sold at 10 per unit, 1 worker can make $70 of output, 2 can make $130 (change=$60), 3 can make $190 (change=$60), and so on. Tada, graph the changes, and you have the firm's demand curve for workers. 100-70 hire zero, 70-60 hire 1, 60-30 hire 4, 30-20 hire 5, 20-00 hire 6.

e) if output price rises, firms will want to produce more, sow they will hire more labor, demand shifts outward.

Thank you for the information.

  • Economic - ,

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