Tandy's Art is the only art studio and workshop in a small remote town, and Tandy’s Art is the only employer of artists in the area. The graph below shows the market for artists with the marginal factor (resource) cost curve, the labor supply curve, and the marginal revenue product curve. Marginal Factor Cost 40 Supply 28 22 20 16 10 Marginal Revenue Product 4 6 12 18 24 32 36 40 Quantity of Artists 48 60 80 16 (a) Identify the profit-maximizing number of artists that Tandy’s Art will hire. Explain using the labeling on the graph. (b) Identify the profit-maximizing wage rate that Tandy’s Art will pay its artists. Explain using the labeling on the graph. (c) If the wage rate is $10, state whether there will be a shortage or a surplus of artists and calculate its size. Show your work. (d) Assume that the market for artists becomes perfectly competitive. What wage rate would Tandy's Art pay its artists if it were a perfectly competitive firm? Explain using labeling on the graph. (e) Assume instead that Tandy's Art uses both labor and capital in its production of artwork. The marginal product of the last unit of labor hired is 90 pieces of artwork per day and the marginal product of the last unit of capital rented is 80 pieces of artwork per day; the daily wage rate for labor is $10 and the daily rental price for capital is $20. To minimize the cost of providing its current level of output, should Tandy’s Art hire more artists, fewer artists, or the same number of AP Microeconomics Page 39 of 46 Wage Rate ($)
Tandy's Art is the only art studio and workshop in a small remote town, and Tandy’s Art is the only employer of artists in the area. The graph below shows the market for artists with the marginal factor (resource) cost curve, the labor supply curve, and the marginal revenue product curve. Marginal Factor Cost 40 Supply 28 22 20 16 10 Marginal Revenue Product 4 6 12 18 24 32 36 40 Quantity of Artists 48 60 80 16 (a) Identify the profit-maximizing number of artists that Tandy’s Art will hire. Explain using the labeling on the graph. (b) Identify the profit-maximizing wage rate that Tandy’s Art will pay its artists. Explain using the labeling on the graph. (c) If the wage rate is $10, state whether there will be a shortage or a surplus of artists and calculate its size. Show your work. (d) Assume that the market for artists becomes perfectly competitive. What wage rate would Tandy's Art pay its artists if it were a perfectly competitive firm? Explain using labeling on the graph. (e) Assume instead that Tandy's Art uses both labor and capital in its production of artwork. The marginal product of the last unit of labor hired is 90 pieces of artwork per day and the marginal product of the last unit of capital rented is 80 pieces of artwork per day; the daily wage rate for labor is $10 and the daily rental price for capital is $20. To minimize the cost of providing its current level of output, should Tandy’s Art hire more artists, fewer artists, or the same number of AP Microeconomics Page 39 of 46 Wage Rate ($)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:11:22 Fri 10 Dec
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have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
"Calculate," you must show how you arrived at your final answer.
Tandy's Art is the only art studio and workshop in a small remote town, and Tandy’s Art is the only employer of artists in
the area. The graph below shows the market for artists with the marginal factor (resource) cost curve, the labor supply
curve, and the marginal revenue product curve.
Marginal
Factor Cost
Supply
28
22
20
16
10
Marginal
Revenue Product
4
12 18 24 32 36 40
Quantity of
Artists
48
60
80
16
(a) Identify the profit-maximizing number of artists that Tandy's Art will hire. Explain using the labeling on the graph.
(b) Identify the profit-maximizing wage rate that Tandy's Art will pay its artists. Explain using the labeling on the graph.
(c) If the wage rate is $10, state whether there will be a shortage or a surplus of artists and calculate its size. Show your
work.
(d) Assume that the market for artists becomes perfectly competitive. What wage rate would Tandy's Art pay its artists if
it were a perfectly competitive firm? Explain using labeling on the graph.
(e) Assume instead that Tandy's Art uses both labor and capital in its production of artwork. The marginal product of the
last unit of labor hired is 90 pieces of artwork per day and the marginal product of the last unit of capital rented is 80
pieces of artwork per day; the daily wage rate for labor is $10 and the daily rental price for capital is $20. To minimize the
cost of providing its current level of output, should Tandy’s Art hire more artists, fewer artists, or the same number of
AP Microeconomics
Page 39 of 46
AP CollegeBoard
Test Booklet
Unit 5 Problem Set - FRQ's
artists? Explain using marginal analysis.
Wage Rate ($)
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