Past Paper Question: 2009 Question 5

Ok so this question falls under the topic "The Demand for and Supply of Factors". It's a pretty common and easy enough question that they like to repeat, so look out for it, it's pretty easy marks too so if you understand it I think you should do it.
Of course I have no idea if this is correct so comment and tell me how much I suck if I mess it up. Also this was before they re-did the mark scheme so it was worth 50 marks instead of 25, you can just divide it to get a rough estimate on how much it's worth now.
*Answers are in this colour
*Comments made by me are in this colour :D 
God...I hope this doesn't get too confusing

(a)(i) State the formula for computing each of the following:
              a) Marginal Physical Product of Labour (MPP) (2 marks)
                  MPP = change in TPP(units of output) / change in quantity (labour input)
              b)Average Physical Product of Labour (APP) (2 marks)
                 APP = TPP (units of output) / quantity (labour input)
*these (a & b) may look a bit familiar (hopefully) that's cause you learned it already in module 1 in supply, yeah it's the same thing, they just added the word labour. 
             c)Value of the Marginal Product (VMP) (2 marks)
                VMP = MPP x price per unit

   (ii)The table below shows the output and wage rate for six units of labour (input).On the answer sheet provided, complete the table assuming that the price of the product is $100 per unit and the wage rate is $200. (18 marks)

LABOUR PRODUCTIVITY AND WAGES

Labour Input (L)	Units of Output (Q)	Marginal Physical Product of Labour (MPP)	Average Physical Product of Labour (APP)	Value of MPP (VMP)	Wage Rate (W)
0	0	0	0	0	$200
1	8	8	8	800	$200
2	21	13	10.5	1300	$200
3	27	6	9	600	$200
4	31	4	7.75	400	$200
5	33	2	6.6	200	$200
6	34	1	5.7	100	$200

(b)(i) Plot the labour demand curve and the wage rate on the same diagram (15 marks) (labour demand curve = VMP and i'm not plotting it cause i'm lazy so take a sketch).

(ii) Determine the number of units that the firm will employ and explain why. (7 marks)

5. they'll employ 5 because the point at which the VMP = marginal fixed cost (in this case the MFC is the wage rate) is the most optimum point as it maximises production.  You see that candy corn shaped space under the VMP and above the wage rate? That's the amount of revenue you are making when you minus the cost of wages. So we'll be making money till the VMP intersects the wage rate.

(iii) If the worker become unionised and their trade union successfully bargains for a wage rate of $400 (a 100% increase, how many workers will now be employed?

4. Because the wage rate increases so the equilibrium increases until the VMP is at 400, so the demand for labour falls. 

You see all that crap about 100% increase and trade unions? That's just there to confuse you... all you needed to take out of this was that the wage rate is $400 now.