Consider a competitive firm that produces bots. Labor (L) and capital (K) are the only two inputs of production; each unit of labor is paid the market wage (w), and each unit of capital is rented at the rental price of capital (r). Output (q) is therefore a function of labor and capital, or q = f (K, L), and is sold at the market price (P). The goal of this firm is to maximize profit given the price of bots, the wage rate, the rental rate of capital, and production technology by choosing its labor and capital inputs. Fill in the following equations with the firm's profit maximization problem: Profit= Profit-maximizing firms must determine how hiring an additional unit of labor will affect profit. To do this, the firm can compare the change in revenue from hiring an additional unit of labor against the cost of that extra worker. The additional output produced by an extra unit of labor is equal to the marginal product of labor (MPL). Because each bot sells for the market price (P), the change in revenue from hiring an additional worker is, and the change in cost is

Consider a competitive firm that produces bots. Labor (L) and capital (K) are the only two inputs of production; each unit of labor is paid the market wage (w), and each unit of capital is rented at the rental price of capital (r). Output (q) is therefore a function of labor and capital, or q = f (K, L), and is sold at the market price (P). The goal of this firm is to maximize profit given the price of bots, the wage rate, the rental rate of capital, and production technology by choosing its labor and capital inputs. Fill in the following equations with the firm's profit maximization problem: Profit= Profit-maximizing firms must determine how hiring an additional unit of labor will affect profit. To do this, the firm can compare the change in revenue from hiring an additional unit of labor against the cost of that extra worker. The additional output produced by an extra unit of labor is equal to the marginal product of labor (MPL). Because each bot sells for the market price (P), the change in revenue from hiring an additional worker is, and the change in cost is

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

M12

Consider a competitive firm that produces bots. Labor (L) and capital (K) are the only two inputs of production; each unit of labor is paid the market
wage (w), and each unit of capital is rented at the rental price of capital (r). Output (q) is therefore a function of labor and capital, or q = f (K, L), and
is sold at the market price (P).
The goal of this firm is to maximize profit given the price of bots, the wage rate, the rental rate of capital, and production technology by choosing its
labor and capital inputs.
Fill in the following equations with the firm's profit maximization problem:
Profit=
Profit-maximizing firms must determine how hiring an additional unit of labor will affect profit. To do this, the firm can compare the change in revenue
from hiring an additional unit of labor against the cost of that extra worker. The additional output produced by an extra unit of labor is equal to the
marginal product of labor (MPL). Because each bot sells for the market price (P), the change in revenue from hiring an additional worker is
the change in cost is
and
Given this condition, which of the following equations correctly
Firms will continue to hire workers until the change in profit is
describes the profit-maximizing labor choice of the firm?
MPL
ⒸW=
MPL = =
ⒸMPL = =
ⒸMPLwxP
Demonstrate your understanding of the previous concepts in the following example. Suppose the price of a bot is equal to $2, and the market wage rate
is $16. Moreover, suppose the marginal product of labor for this firm is equal to the following:
MP₁ = 18-L
In this case, the real wage rate is
bots per unit of labor, and the firm will hire
units of labor.

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