1. Acme Widget, Inc. has the following production function:
Number of Workers Number of Widgets Produced
Acme can get $5 for each widget it produces. How many workers will it hire if the nominal wage is $38? If it is $27? If it is $22?
2. The marginal product of labour for a certain firm is MPN = 50 – N, where N is the number of labour hours used in production. The price of output is $2 per unit,
a) If the nominal wage is $10/hour, how many hours of labour will be demanded by the firm?
b) If the nominal wage is increased to $12/hour, how many hours of labour will be demanded by the firm?
c) What is the wage elasticity of labour demand for this wage change? (Use the midpoint formula to calculate the arc elasticity.)
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