3. Acme Widget, Inc. has the following production function.

Number of Workers Number of Widgets Produced 0

1 0

2 3

8 15 21 4

5 26 30 Number of Workers Number of Widgets Produced 6

33

a. Find the MPN for each level of employment.

b. Acme can get $5 for each widget it produces. How many workers will it hire if the nominal wage is $38? If it is $27?

If it is $22?

c. Graph the relationship between Acme’s labor demand and the nominal wage. How does this graph differ from a labor demand curve? Graph Acme’s labor demand curve.

d. With the nominal wage fixed at $38, the price of widgets doubles from $5 each to $10 each. What happens to Acme’s labor demand and production?

e. With the nominal wage fixed at $38 and the price of widgets fixed at $5, the introduction of a new automatic widget maker doubles the number of widgets that the same number of workers can produce. What happens to labor demand and production?

f. What is the relationship between your answers to part ( )

and part ( )? Explain.

e d