Assume that the quantity of envelopes licked per hour by Sticky Gums, Inc., is q = 10,000 √L where L is the number of laborers hired per hour by the firm. Assume further that the envelope-licking business is perfectly competitive with a market price of $0.01 per envelope. The marginal product of a worker is given by

MPL = 5,000 = √L

a. How much labor would be hired at a competitive wage of $10? $5? $2? Use your results to sketch a demand curve for labor.

b. Assume that Sticky Gums hires its labor at an hourly wage of $10. What quantity of envelopes will be licked when the price of a licked envelope is $0.10? $0.05? $0.02? Use your results to sketch a supply curve for licked envelopes.