Suppose, due to a technological innovation, the marginal product of each worker rises by two. At the same time, due to tight labor markets, the wages that you must pay rise to $120 per day. Additionally, preferences for your product rise and thus prices rise to $5.00. Given these new conditions, on a piece of scrap paper, fill in a table like the following. The current wage is $120 and the price of output (Q) is equal to $5.00.
NOTE: You will not need to submit this table, but it will help you answer the following THREE questions.
|L||Q||MPL||MRP||Marginal Profit||Total Profit|
- How many workers will you hire to maximize profits?
- What are the maximum profits?
- Why did the firm change their behavior given the changes above? Be sure to compare the profit if these changes occurred and the firm did not change their labor input to the profit of the firm when they act as a profit maximizer.
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