We now examine a production problem. Consider two firms, ea…
We now examine a production problem. Consider two firms, each producing widgets, who sell in two different types of output markets. In particular, firm PC sells widgets in a perfectly competitive output market, where there are so many firms and widgets sold that a single firm’s quantity produced does not affect the market price. In a separate market, firm M acts as a monopolist and sees diminishing marginal revenue with higher levels of production. Each firm produces widgets according to the same production technology. The table below shows the number of widgets produced given some number of workers employed. # of workers widgets produced 1 12 2 23 3 33 4 42 5 50 6 57 7 63 8 68 9 72 10 75 Marginal revenue is constant for firm PC — they obtain $5 per widget sold. Marginal revenue is decreasing for firm M — they obtain $5 per widget sold for their first 4 workers; $4 per widget for the next 3 workers; and $3 per widget for the final 3. If the market wage is $48, firm PC should hire workers and firm M should hire workers. If the market wage is $36, firm PC should hire workers and firm M should hire workers. Finally, if the market wage is $18, firm PC should hire workers and firm M should hire workers.