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Satsume Satsume
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7 years ago
Mr. Barnes has a monopoly in the production of electricity in the local market.  The relevant marginal revenue of electricity sales as a function of labor employment is:  MR(L) = 100,000 - 28.57 L.  The marginal product of labor in electricity production is 0.01.  Mr. Barnes is a price taker in the labor employment market, and the market price of labor is $15.  Determine Mr. Barnes' optimal employment of labor.
Textbook 
Microeconomics

Microeconomics


Edition: 8th
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#1
7 years ago
Mr. Barnes' marginal revenue of the product of labor is           
   MRPL(L) = MPL  MR(L) = 1,000 - 0.29L.         
Mr. Barnes' must set the marginal revenue of the product of labor equal to the cost of labor in order to maximize profits.  In this case, optimal employment is: 
   1000 - 0.29L = 15.   
Therefore we have L = 3,447.5.
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