Use Pic 2 for question 4 Pic 2 VMP w wo L3 4 Pic 2 shows th

Use Pic. 2 for question 4. Pic. 2 VMP, w wo ? L3 4. Pic. 2 shows the firm\'s VMPL curve. The firm can buy a unit of labor at a fixed cost (wage) of Wo. Based on Pic. 2, the optimal level of L that this firm should use is A. at L-Li B, at L= L2 C. at L= L3 D. between L1 and L2

Solution

C is correct

VMPl is the demand for labor. At w0 demand for labor can be either L1 or L3, but with L3 more output is produced with labor cost same as with L1

L3 should be chosen.