Saifeldeen Allam

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University of South Florida, Tampa *

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3098 - R

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Economics

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Feb 20, 2024

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Saifeldeen Allam 01/28/2023 Labor Economics Homework 2: Chapter 3 1) The marginal revenue product of labor at the local sawmill is, MRPL=20-0.5L where L = the number of workers. If the wage of sawmill workers is $10 per hour, then how many workers will the mill hire? Answer: L = 20 2) The output of workers at a factory depends on the number of supervisors hired (see the following table). The factory sells its output for $0.50 each, it hires 50 production workers at a wage of $100 per day, and it needs to decide how many supervisors to hire. The daily wage of supervisors is $500, but output rises as more supervisors are hired, as shown in the table. How many supervisors should it hire? Answer: When adding a supervisor, the company must weigh the marginal cost against the marginal income. Every additional supervisor always has a $500 marginal cost. The quantity of extra units produced multiplied by the output price equals the marginal revenue. Number of Supervisors MC MR 1 $500 $0.50 3800 $1900 2 $500 $0.50 3200 $1600 3 $500 $0.50 1500 $750 4 $500 $0.50 700 $350 5 $500 $0.50 400 $200 Since adding a third supervisor will bring in more than $500 in marginal income but employing a fourth will bring in less than $500, the company will hire three supervisors. 3) Answer: A. Total Bakers Quantity of Cakes 0 0 — — 1 10 10 100 MPL MRPL MPL *(Number of cakes)/L b. Yes, the marginal product of labor declines as more bakers are hired. c. The marginal revenue product of labor (MRPL) is calculated in the fourth column, using the following formula: MRPL  MPL  P e. If each baker is paid $80 per day, 2 bakers would be hired, and 18 cakes would be baked and sold daily. no employment increases. Review Questions:

1) Assume that wages for keyboarders (data entry clerks) are lower in India than in the United States. Does this mean that keyboarding jobs in the United States will be lost to India? Explain. Answer: Only if the pay to marginal productivity ratio of Indian data entry clerks is lower than that of American counterparts would Indians be replaced. Therefore, marginal productivity plays a crucial role in influencing the incentives to substitute, rather than only salary.

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