Given that the current wage is $95 and the price of output (Q) is equal to $3.00, complete the table on your exam sheet.

Use the table to answer the following questions:

1. How many workers will the firm hire to maximize profits?
2. What are the maximum profits?
3. How much output is produced at profit maximization?

Now draw the W/MRP Labor Market Diagram associated with the table above

• labor costs,
• MRP (label the curve exactly as we did in lectures and homework), and
• the profit or loss (with actual numbers)
• Identify L*

Label this initial point where the firm maximizes profit as point A.

Draw a production function diagram in the indicated area

Draw a supply curve in the indicated area. Locate Point A consistent with your Points A above. To get a second point on this original supply curve, pretend that prices go up by a dollar and map out the change in the profit maximizing outpu.tThis will give us our original supply curve.

L MFL MR.P Marginal Profit Total Profit 0 55 115 155 185 205 6 215 MRP - W labor market diagram Production Function Supply Curve