How is the optimal amount of labor determined in a perfectly competitive market?
A profit maximising firm will employ labour up to the point where the extra cost incurred by employing the last unit of labour (wage) equals the additional benefit it earns by employing that unit of labour.
That is, Marginal cost of labour = Marginal benefit by labour
Or, Wage rate = Marginal Revenue ProductL
Or, w = MRPL
Or, w = MR × MPL (as MRPL =MR ×MPL)
Or, w = P× MPL (in Perfect Competition Price = MR)
Or, w = VMPL (because VMPL= P ×MPL)
The demand for labour is derived from VMPL and the supply of labour is positively sloped. The equilibrium exists at E, where the demand for labour and the supply of labour intersect each other. The equilibrium wage rate is w and optimal amount of labour is qL.
Popular Questions of Class 12 Micro Economics
- Q:-
What is the supply curve of a firm in the long run?
- Q:-
The market price of a good changes from Rs 5 to Rs 20. As a result, the quantity supplied by a firm increases by 15 units. The price elasticity of the firm’s supply curve is 0.5. Find the initial and final output levels of the firm.
- Q:-
A firm earns a revenue of Rs 50 when the market price of a good is Rs 10. The market price increases to Rs 15 and the firm now earns a revenue of Rs 150. What is the price elasticity of the firm’s supply curve?
- Q:-
Distinguish between a centrally planned economy and a market economy.
- Q:-
How does the imposition of a unit tax affect the supply curve of a firm?
- Q:-
A consumer wants to consume two goods. The prices of the two goods are Rs 4
and Rs 5 respectively. The consumer’s income is Rs 20.
(i) Write down the equation of the budget line.
(ii) How much of good 1 can the consumer consume if she spends her entire
income on that good?
(iii) How much of good 2 can she consume if she spends her entire income on
that good?
(iv) What is the slope of the budget line?
Questions 5, 6 and 7 are related to question 4. - Q:-
What is the relation between market price and average revenue of a price-taking firm?
- Q:-
What is budget line?
- Q:-
Suppose there are 20 consumers for a good and they have identical demand functions:
d(p)=10–3pd(p)=10–3p for any price less than or equal to 103103 and d1(p)=0d1(p)=0 at any price greater than 103.
- Q:-
Suppose your friend is indifferent to the bundles (5, 6) and (6, 6). Are the preferences of your friend monotonic?
Recently Viewed Questions of Class 12 Micro Economics
- Q:-
Will a profit-maximising firm in a competitive market produce a positive level of output in the short run if the market price is less than the minimum of AVC? Give an explanation.
- Q:-
What is the supply curve of a firm in the long run?
- Q:-
Discuss the subject matter of economics.
- Q:-
How will a change in the price of coffee affect the equilibrium price of tea? Explain the effect on equilibrium quantity also through a diagram.
- Q:-
When does a production function satisfy constant returns to scale?
- Q:-
Comment on the shape of MR curve in case when TR curve is a
(a) Positively sloped straight line
(b) Horizontal straight line
- Q:-
What does the average fixed cost curve look like? Why does it look so?
- Q:-
What do the long-run marginal cost and the average cost curves look like?
- Q:-
What does the price elasticity of supply mean? How do we measure it?
- Q:-
What do you mean by the budget set of a consumer?
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