AP Micro · Unit 5 · Factor Markets

Boreal Timber Co. is the only employer of log-scalers in Norrindal and sells lumber in a perfectly competitive market. It pays the same daily wage to every log-scaler it hires. The table shows the wage needed to hire each number of log-scalers and each one's marginal revenue product ($MRP$).

(a) How many log-scalers will Boreal Timber Co. hire to maximize profit? Explain using marginal analysis.
(b) Draw a correctly labeled graph of the labor market for log-scalers in Norrindal. On your graph:

• (i) draw and label the downward-sloping marginal revenue product curve, $MRP$
• (ii) draw and label the upward-sloping labor supply curve, $S$, showing the wage Boreal Timber Co. must pay to attract each additional log-scaler
• (iii) draw and label the marginal resource cost curve, $MRC$ (also called $MFC$), lying above $S$ at every quantity greater than zero
• (iv) identify and label the profit-maximizing quantity of labor, $L_M$, where $MRC$ intersects $MRP$
• (v) identify and label the wage rate, $W_M$, that Boreal Timber Co. actually pays, found by reading up from $L_M$ to the $S$ curve
  (c) On your graph in part (b), show the quantity of labor and the wage that would result if the market for log-scalers were perfectly competitive, labeled $L_C$ and $W_C$, respectively.
  (d) Compared with the perfectly competitive outcome in part (c), does Boreal Timber Co. hire more, fewer, or the same number of log-scalers, and does it pay a higher, lower, or the same wage? Identify both.
  (e) Suppose the government of Norrindal requires Boreal Timber Co. to pay a minimum wage equal to $W_C$ from part (c). Will the number of log-scalers hired increase, decrease, or remain the same? Explain.