Question:

How many units of labor should a firm hire in order to maximize profits?

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Capital is fixed at 16 units. The firm can sell its output at a price of $100 per unit and can hire labor at $25 per unit.

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  1. Equilibrium is at point where MR=MC or MRPL=MFC

    MRPL=MPL*MR=MPL*P=MPL*100

    MFC=$25 = W

    MC=W/MPL=$25/MPL

    MR=P=$100

    case [1]: MRPL=MFC → 100MPL=25

    case [2]: MC=MR → 25/MPL=100

    Thus you should provide production function to solve right - because it is required to know marginal worker productivity.

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