A pizza shop's marginal product of labour, measured as the number of pizzas delivered per week, is
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Question:
A pizza shop's marginal product of labour, measured as the number of pizzas delivered per week, isMPL= 55 - 5L, whereLis the number of workers. The average price of a pizza in this highly competitive market is $10. The shop can hire workers at the market wage of $300 per week.
a. How many workers will the pizza shop hire? (3 marks)
Now suppose the shop is a monopsonist and faces labor supply ofW= 100 + 50L, whereWis the wage per week andLis the number of workers.
b. How many workers will the pizza shop hire when the price of pizza is $10? (4 marks)
c. An influx of college students coming back from vacation raises the market price of a pizza to $20. How many workers will the pizza shop hire when the price of pizza is $20? (3 marks)
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