Question Two Quasi-fixed costs are an important component of production costs alongside labour hours costs.a) Assume a t-period of setting. Write down the mathematical expression that describes theprofit-maximizing employment rule of a firm when there exist quasi-fixed costs. Explain what this expression means.(4 Marks)b) Consider a firm that exists for one period. The value of its marginal product of labour isgiven by VMP = P x MP, where P is the price of output and MPL =10-0.5L.The market wage rate is $10. Assume there are no hiring or training costs. If the firm expects the price of output to be $10, what is the optimal level of employment? If the firm hires these workers but then finds out that the price of output is $5, what will the firm do? Do you think your finding makes sense? (6 Marks)(Hint: If there is only one period, the number of periods becomes "1", and we do not need to discount future values into present values.)

Question Two Quasi-fixed costs are an important component of production costs alongside labour hours costs. a) b) Assume a t-period of setting. Write down the mathematical expression that describes the profit-maximizing employment rule of a firm when there exist quasi-fixed costs. Explain what this expression means. (4 Marks) Consider a firm that exists for one period. The value of its marginal product of labour is given by VMP, = P x MP;, where P is the price of output and MPL = 10 0.5L. The market wage rate is $10. Assume there are no hiring or training costs. If the firm expects the price of output to be $10, what is the optimal level of employment? If the firm hires these workers but then finds out that the price of output is $5, what will the firm do? Do you think your finding makes sense? (6 Marks) (Hint: If there is only one period, the number of periods becomes to discount future values into present values.) ttl\" , and we do not need