If a firm finds itself operating in Stage I, it implies that ...

[bclement10]

If a firm finds itself operating in Stage I, it implies that
 
  A) variable inputs are extremely expensive.
  B) it overinvested in fixed capacity.
  C) it underinvested in fixed capacity.
  D) fixed inputs are extremely expensive.

Question 2

Suppose a monopoly producer is also a monopsonist in the labor market. Demand for the output is p = 100 - Q. The production function is Q = L, and the labor supply curve is w = 10 + L. How much labor does the firm hire? What wage is paid?
 
  What will be an ideal response?

[manuelcastillo]

Answer to Question 1

B

Answer to Question 2

The firm's marginal revenue product of labor is MRP = 100 - 2L. Marginal expenditure is 10 + 2L. Setting them equal yields 10 + 2L = 100 - 2L or L = 90/4 = 22.5 units of labor, for which the firm will pay a wage of (10 + L) = 32.5.