Wage Rate ($) No 229 22 AP 20 16 13 10 30 45 60 80 100 120135150 90 Marginal Factor Cost Supply Factor Markets Marginal Revenue Product 180 200 160 (a) If the wage rate is $13, state whether there will be a shortage or a surplus of bakers and calculate its size. Show your work Quantity of Bakers (b) Identify the profin-maximizing number of bakers that Bobby's Bakehouse will hire. Explain using the labeling on the graph (c) Identify the profie-maximizing wage rate that Bobby's Bakehouse will pay its bakers, Explain using the labeling on the graph (d) If the marginal product of bakers increases, what will happen to the quantity of output produced by Bobby's AP Micrones Page 11 of 13 Toe Bide Bakehouse? Explain (e) Assume instead that Bobby's Bakehouse uses both labor and capital in its production of baked goods. The marginal product of the last unit of labor hired is 16 baked goods per hour and the marginal product of the last unit of capital rented is 50 baked goods per hour; the hourly wage rate for labor is $8 and the hourly rental price for capital is $5. To minimize the cost of producing its current level of output, should Bobby's Bakehouse rent more capital, less capital, or the same amount of capital? Explain using marginal analysis.
Wage Rate ($) No 229 22 AP 20 16 13 10 30 45 60 80 100 120135150 90 Marginal Factor Cost Supply Factor Markets Marginal Revenue Product 180 200 160 (a) If the wage rate is $13, state whether there will be a shortage or a surplus of bakers and calculate its size. Show your work Quantity of Bakers (b) Identify the profin-maximizing number of bakers that Bobby's Bakehouse will hire. Explain using the labeling on the graph (c) Identify the profie-maximizing wage rate that Bobby's Bakehouse will pay its bakers, Explain using the labeling on the graph (d) If the marginal product of bakers increases, what will happen to the quantity of output produced by Bobby's AP Micrones Page 11 of 13 Toe Bide Bakehouse? Explain (e) Assume instead that Bobby's Bakehouse uses both labor and capital in its production of baked goods. The marginal product of the last unit of labor hired is 16 baked goods per hour and the marginal product of the last unit of capital rented is 50 baked goods per hour; the hourly wage rate for labor is $8 and the hourly rental price for capital is $5. To minimize the cost of producing its current level of output, should Bobby's Bakehouse rent more capital, less capital, or the same amount of capital? Explain using marginal analysis.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:AP C
Factor Markets
Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram
must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
"Calculate," you must show how you arrived at your final answer.
Bobby's Bakehouse is the only bakery in a small remote town, and Bobby's Bakehouse is the only employer of bakers in
the area. The graph below shows the market for bakers with the marginal factor (resource) cost curve, the labor supply
curve, and the marginal revenue product curve.
Wage Rate ($)
22 22 2
20
16
13
10
0
30 45 60 80 100 120135150
90
Marginal
Factor Cost
Supply
Factor Markets
Marginal
Revenue Product
Jox
180 200
Quantity
of Bakers
160
(a) If the wage rate is $13, state whether there will be a shortage or a surplus of bakers and calculate its size. Show your
work
(b) Identify the profit-maximizing number of bakers that Bobby's Bakehouse will hire. Explain using the labeling on the
graph
(c) Identify the profit-maximizing wage rate that Bobby's Bakehouse will pay its bakers, Explain using the labeling on the
graph
(d) If the marginal product of bakers increases, what will happen to the quantity of output produced by Bobby's
AP Microeconomics Page 11 of 13
Bakehouse? Explain
(e) Assume instead that Bobby's Bakehouse uses both labor and capital in its production of baked goods. The marginal
product of the last unit of labor hired is 16 baked goods per hour and the marginal product of the last unit of capital rented
is 50 baked goods per hour; the hourly wage rate for labor is $8 and the hourly rental price for capital is $5. To minimize
the cost of producing its current level of output, should Bobby's Bakehouse rent more capital, less capital, or the same
amount of capital? Explain using marginal analysis.
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