Consider a firm that exists for one period. The value of labour’s(L) marginal product is given by VMPL = P ?MPL, where P is the price of output, and MPL = 10 – 0.5L. The wage rate is $10.a. Assume that 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, L0? If the firm hires these workers, but then finds out that the price of output is $5, what will the firm do?b. Assume now that there are hiring and training costs of $20 per worker. If the firm expects the price of output to be $10, what is the optimal level of employment? How does this compare to your answer in part (a)? If the firm hires these workers but then finds out that the price of output is $5, what will the firm do? What if the price is $2? Explain.BusinessEconomics
