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Question 1.

A firm's labor demand curve is also its marginal revenue product curve. For both the perfectly competitive firm and the output price maker, the labor demand curve slopes downwards. However, there is a difference in the reasons why the labor demand curve slopes downwards. What is this difference?

Question 2.

Table 17-5

Number of Mechanics	Oil Changes per Day	Marginal Product	Marginal Revenue Product
1	6	​	​
2	12	​	​
3	17	​	​
4	21	​	​
5	24	​	​
6	26	​	​

Refer to Table 17-5. Oil Can Harry's, a new automobile service shop, is ready to start hiring. The table above shows the relationship between the number of mechanics the firm hires and the quantity of oil changes it produces.

a.	Suppose the price of an oil change is $20. Complete the table by filling in the values for

marginal product and marginal revenue product.

b.	Oil Can Harry's is an input price-taker. Suppose the wage paid to mechanics is $80 per day.

What is the profit-maximizing number of mechanics?

c.	Suppose the wage rate rises to $100 per day.

(i) What happens to the firm's demand curve for mechanics?

(ii) What happens to the profit-maximizing quantity of mechanics?

d.	Suppose the wage rate is $60 per day and the price of an oil change is now $15.

(i) What happens to the firm's demand curve for mechanics?

(ii) What happens to the profit-maximizing quantity of mechanics?

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