Particular type of skilled labor

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In the short run, a particular type of skilled labor is the only variable factor used by a firm. The manager of the firm has estimated that the marginal product of labor is given by MPL = a - b L, where a and b are numbers to be specified below. The hourly wage is w, and each unit of output can be sold in a competitive market at a market price P. If w = $78, P = $25, a = 50, b = 2, and the firm is employing L = 22, then based on this information

  • The firm is using the optimal (profit-maximizing) amount of labor
  • The firm can increase its profits by reducing the amount of labor used
  • The firm can increase its profits by increasing the amount of labor used
  • The law of diminishing returns does not hold

Reference no: EM131104049

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