Imagine an industry producing robots. There are 100 firms in the industry (enough to make the product market competitive), each operating a single factory. The technology for producing robots is as follows. Each factory has 5 workstations that can accommodate workers. Labour and capital (the workstation) are the only inputs to robot-building. Labour is hired in a competitive market. Each worker can produce two robots in one year if they work alone at a workstation. If two workers work at the same workstation, they can produce three robots in one year. Three workers are too many for a workstation. The market price of robots is $100,000.

a. Draw and clearly label the short-run labour demand curve for a typical firm in this industry. Be sure to indicate quantities and wages, and show how you derived the curve.

b. Draw the market labour demand curve for this industry. Be sure to indicate quantities and wages, and show how you derived the curve.

c. Suppose that the market wage is $100,000 per year. How many workers does the typical firm hire? What is total employment in this industry?

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