A firm has the following production function: and faces the following demand curve for their product: How much labor will the firm hire if the wage rate is $20 and the firm wishes to mark price 100% above marginal cost?

firm  hire labor = 400 units

Explanation:

given data

Q = 5L

P = 10 - 0.001 Q

wage rate =  $20

mark price = 100% above marginal cost

solution

when we take here Q = 5L

so L will be

L = 0.2 Q     .................1

and

cost will be = wage ×  labor hired    ......................2

put here value

Cost = 0.2Q × 20

cost C =  4Q

and

marginal cost  =        

so here price will be

price = MC + 100% of MC  = $4 + $4

price = $8

so at price $8, Q will be

P = 10 - 0.001 Q

8 = 10 - 0.001 Q  

Q = 2000 units  

so that labor units will be

labor units = 0.2 × 2000

labor units = 400 units

answer; 20% is your answer;

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