The house painting industry is highly competitive on both the input and output sides. The marginal product of labor faced by a typical firm in the industry is given by MPL = 25 - L, where L is the number of workers hired and MPL is measured in square feet painted per hour. Firms typically charge their clients $10 per 25 square feet painted.
a. Determine the marginal revenue product of labor faced by the typical firm.
b. At what wage will firms not want to hire any workers at all?
c. If workers worked for free, how many workers would the typical firm hire? Explain intuitively why the firm should not hire any more.
d. If the prevailing market wage for house painters is $20 per hour, how many workers should the typical firm hire?
e. Suppose a new paint formulation requires fewer coats, increasing workers' marginal products to MPL = 35 - L. How will this new paint affect the hiring decisions of employers?