A Firm Calculates That the Marginal Product of Labor (MPL)

question 8

Essay

A firm calculates that the marginal product of labor (MPL) can be found from the following equation:
MPL = 35 − 2L
where L is the number of workers hired.
The production function for this firm is as follows:
Q = 35L − L²
The firm knows it can find profits with the following equation:
Profit = P × Q − W × L
where P stands for the selling price of the good, Q stands for total output, and W represents the wage. Price is equal to $1.
a. If the wage is $11, how many workers will the firm hire? How much profit will it earn?
b. Compare this level of profits to those earned by the firm if it hired one fewer worker than L* and one worker more than L* to demonstrate that L* workers generate the most profit for the firm.

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Definitions:

Scientific Management

A management theory that analyzes and synthesizes workflows, aiming to improve economic efficiency and labor productivity.

Sociologist

A social scientist who studies the development, structure, and functioning of human society and the social problems it faces.

Free Markets

Economic systems in which prices for goods and services are determined by the open market and consumers, in the absence of government intervention.

Regulated Markets

Markets that are subject to oversight and control by governmental or other authoritative entities to ensure fairness, competition, and compliance with laws.