Leadbelly Co. sells pencils in a perfectly competitive

product market and hires workers in a perfectly

competitive labor market. Assume that the market

wage rate for workers is $150 per day.

a.

What rule should Leadbelly follow to hire the

profit-maximizing amount of labor?

b.

At the profit-maximizing level of output, the

marginal product of the last worker hired is

30 boxes of pencils per day. Calculate the price

of a box of pencils.

c.

Draw a diagram of the labor market for pencil

workers (as in Figure 4 of this chapter) next to

a diagram of the labor supply and demand for

Leadbelly Co. (as in Figure 3). Label the equilibrium

wage and quantity of labor for both the market and

the firm. How are these diagrams related?

d.

Suppose some pencil workers switch to jobs in the

growing computer industry. On the side-by-side

diagrams from part (c), show how this change

affects the equilibrium wage and quantity of labor

both for the pencil market and for Leadbelly. How

does this change affect the marginal product of

labor at Leadbelly?