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Outsourcing and education

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A perfectly competitive firm has a MPL = 22-L. If P = 5 and w = $10/hr:
(a) What is the optimal quantity of labor demanded?

(b) Given these circumstances, how can the firm and the employee avoid outsourcing?

(c) How does the "slacker" or "lazy" worker compound the other workers problems? This answer relates to the nature of perfect competition.

(d) given you answer to c why should an someone who has already gone to college invest in another worker's education?

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Solution Summary

Optimal level of employees, outsourcing, education, and lazy workers

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A perfectly competitive firm has a MPL = 22-L. If P = 5 and w = $10/hr:
(a) What is the optimal quantity of labor demanded?

The optimal level is reached with the MRP of labor is equal to the wage. The MRP is equal to the MPL x P. Thus our equation is:
(22-L)P = 10
Using 5 for P and solving for L:
110 - 5L = 10
100 = 5L
L = 20

Thus the optimal level of employees is 20.

Overseas, the wage tends to be lower. ...

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