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# (Solved): 3) Suppose firm 1s value marginal product of labor is represented as VMPL1=45 1.5L1 and firm ...

3) Suppose firm 1’s value marginal product of labor is represented as VMPL1=45 – 1.5L1 and firm 1’s value marginal product of labor is represented as VMPL2=60 - 3L2. Assume these two firms use same kind of labor and their labor markets are integrated. a) Suppose the total supply of labor is given as L = 20 + 0.5 W, where ‘W’ represents wage rate. (i) What is the equilibrium wage rate? (ii) What is the total amount labor hired in the market? (iii) What is the amount labor hired by firm 1? (iv) What is the amount labor hired by firm 2? b) Suppose firm 1’s product price has increased by 33.34% in the market. (i) What happens to the equilibrium wage rate? (ii) What happens to the total amount labor hired in the market? (iii) What happens to the amount labor hired by firm 1? (iv) What happens to the amount labor hired by firm 2?

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