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A firm that is hiring labour (L) and capital (K) competitively is selling its product (Q) in a competitive market as given in the following

A firm that is hiring labour (L) and capital (K) competitively is selling its product (Q) in a competitive market as given in the following table. The price of a product Q is $4. Each worker costs $20 and each capital costs $5.

L

K

Q

MPL

VMPL

0

4

1

4

20

2

4

37

3

4

51

4

4

62

5

4

70

6

4

75

7

4

77

8

4

76

a. Complete the columns of Marginal Product of Labour (MPL) and Value of the Marginal Product of Labour (VMPL) in the above table. (2 marks)

b. How many workers will the firm hire? Explain why? (3 marks)

c. Calculate the maximum profit that this firm will earn. (2 marks)

d. Unemployment has gone up due to the COVID-19 pandemic. As a result, the wage rate has fallen from $20 to $8. Recalculate the number of workers this firm will now hire and its maximum profit.

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