Temple University

Department of Economics

Inputs in Competitive Markets



The Krakow Manufacturing Company raises crocuses for the retail market. The market for crocuses is competitive. Also, relative to the market, their demand for labor is quite small. The relationship between various amounts of labor input and the firm's output is shown below.

Product Price Units of Labor Units of Output Marginal Product of Labor Marginal Revenue Product = Price x MPL
20 0 0 -- --
20 1 2.5
20 2 5
20 3 7
20 4 8

a. Fill in the blank columns.

b. Krakow employs three units of labor in its crocus operation. This information establishes the wage rate prevailing in the labor market. What is the wage that Krakow is paying each of its three units of labor ?

c. If the wage for a unit of labor rose above , then Krakow would not not hire any labor at all and leave the industry, even in the short run.

d. There is technological breakthrough in the crocus industry which raises the productivity of labor. The result of the breakthrough is that the ouput at any level of employment is twice what it was before. If the wage rate remains at the same level as in part b., how much labor will Krakow now employ ?