subject

• 1. 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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