The table below describes the key elements in deriving a labor demand curve for a bakery. Complete the table and answer the following questions.

The table below describes the key elements in deriving a labor demand curve for a bakery. Complete the table and answer the following questions.

 

answer:

No. of workers Loaves baked MP Price P*MP Nominal wage Real wage
0 0 $1 $8 $8
1 20 20 $1 $20 $8 $8
2 36 16 $1 $16 $8 $8
3 48 12 $1 $12 $8 $8
4 56 8 $1 $8 $8 $8
5 60 4 $1 $4 $8 $8
6 62 2 $1 $2 $8 $8

a) Marginal product keeps on decreasing from 2nd unit of labour only.

b) Marginal product increases till 1 unit of labour and then goes on to decline

c) If nominal wage is $8, it will hire 4 units of labour as P*MP = Wage at that point

d) If price increases to $2, then it will hire 5 labour as at that point P*MP = Wage

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