# Consider the following information about how a firm's output Y is related to the amount of labor...

## Question:

Consider the following information about how a firm's output {eq}Y {/eq} is related to the amount of labor it hires, {eq}L {/eq} (holding the amount of capital, K, constant).

L | Y |
---|---|

0 | 0 |

1 | 301 |

2 | 477 |

3 | 602 |

4 | 699 |

5 | 778 |

6 | 845 |

A. Compute the marginal product of labor associated with each additional unit of labor hired.

B. Plot the firm's demand for labor, with {eq}L {/eq} on the horizontal axis and the real wage, {eq}W/P {/eq}, on the vertical axis.

C. Suppose the nominal wage is {eq}W = 237 {/eq}, and the price of output is {eq}P = 3 {/eq}. How many units of labor should the firm hire and why?

D. Suppose the nominal wage rises to {eq}W = 291 {/eq}. How many units of labor should the firm hire now?

## Labor demand

The input demand function, or specifically labor demand function, expresses the relationship between the input price (wage rate) and the quantity of inputs (labor) hired. The profit-maximizing input usage is attained at the level where the marginal product equals the real wage rate.

## Answer and Explanation: 1

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**A. Compute the marginal product of labor associated with each additional unit of labor hired.**

L | Y | MPL |
---|---|---|

0 | 0 |

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Chapter 7 / Lesson 4Learn about the labor supply and demand curves in economics. Explore the labor supply and demand curve shifts, and study the factors that impact both curves.

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