Suppose that labour is the only input used by a perfectly competitive firm. The firm can
hire workers for
$30 per day. Each unit sells for $6. The firm’s production function is as
i) Fill this table in your exam booklet, filling in the value of the marginal
product of labour (VMP) at each input level.
ii) How many workers should the firm employ to maximise profit? Explain.
iii) If labour is the only cost for the firm, how much profit does it make at the
profit- maximising level of output? In the long run, and assuming other opportunity
costs are currently zero, should we expect firms to enter this industry or exit this