(Answer) 1. Suppose that the firm faces perfectly competitive - #80050

For Questions 1-3, use the following information about a firm’s (short run) daily production:

Number of Workers	Total Units of Output Produced
0	0
1	12
2	22
3	30
4	37
5	43
6	48
7	52
8	55
9	57
10	58

1. Suppose that the firm faces perfectly competitive input and output markets. The market price for the firm’s output is $20/unit, and the market wage is $120/day. What is the firm’s profit maximizing level of employment? How many units of output does the firm produce? If the firm faces fixed costs of $100/day, what is the firm’s profit (revenue minus total costs)?

2. Now suppose that the firm is a monopolist in the output market, but faces perfectly competitive input markets. We have the following information about daily demand for the firm’s output:

Price of Output	Units of Output Sold
60	0
50	12
41	22
35	30
32	37
30	43
28	48
26	52
24	55
20	57
16	58

If the market wage is $106/day, what is the monopolist’s profit maximizing level of employment? How many units of output does the firm produce? If the firm faces fixed costs of $150/day, what is the firms’ profit (revenue minus total costs)?

3. Now suppose that the firm is a monopsonist in the labour market, but faces a perfectly competitive output market. We have the following information about the labour supply curve that this firm faces:

Daily Wage Paid	Number of Workers Hired
40	0
50	1
60	2
70	3
80	4
88	5
95	6
102	7
110	8
120	9
130	10

If the market price for the firm’s output is $20/unit, what is the monopsonist’s profit maximizing level of employment? How many units of output does the firm produce? If the firm faces fixed costs of $80/day, what is the firm’s profit (revenue minus total costs).

4. Suppose that a worker’s alternative wage, W*, is $200 in every period. A firm offers the worker a three-period contract that pays $180 in the first period and $200 in the second period. Assuming that the interest rate (discount rate) is 10%, how much must the firm offer in the third period to attract the worker?

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