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A company sells pencils in a perfectly competitive product market and hires workers in a perfectly competitive labor market. Assume the market wage for workers is $ 150 per day.
a) What rule should this company follow to hire the profit-maximizing amount of labor?
b) At the profit-maximizing level of output, the marginal product of the last worker is 30 boxes of pencils per day. Calculate the price of a box of pencils.
c) Draw a diagram of the labor marker for pencil workers next to a diagram of the labor supply and demand for this company. Label the equilibrium wage and quantity of labor for both the market and the firm. How are these diagrams related?
d) Suppose some pencil workers switch to jobs in the growing computer industry. On the side by side diagram from part (c), show how this change affects the equilibrium wage and quantity of labor of b both the pencil market and this company. How does the change affect the MPL for this company?
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