Econ Micro (book Only)
6th Edition
ISBN: 9781337408066
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 12, Problem 10P
To determine
The reasons firms in industries with high fixed costs be apt to prevent strikes or end-strikes quickly.
Concept Introduction:
Strike:
This is an industrial action taken up by the employees working in a factory or any industry as a form of protest against certain demands requested by the workforce which has been turned down by the employer.
Fixed cost:
This is a cost that does not vary with the number of units produced.
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19. (Use this information to answer qustion 19 - 23) Suppose there is one firm
solving the following profit maximization problem. Note that the output
price is normalized as 1.
max AL¹-a
{L}
wL
where A = 2 and a =
0.6. How much is the aggregate labor demand when
the wage is 1?
(a) 0.242
(b) 0.435
(c) 0.689
(d) 0.923
10
Suppose a firm needs to combine 3 units of machines with 7 units of labor to produce one unit of output. Now assume the firm has 18 machines. There is a sudden shock such that the wages of labor doubles in the market.
(a) What is the short run elasticity of labor demand?
(b) What other margins of adjustment does the firm have in the long run? Explain
2. (Short-run costs, Evren wants to go into the donut business. For $500 per month he can rent a
bakery complete with all the equipment he needs to make a dozen different kinds of donuts (K=1, r=
500). He must pay unionized donut bakers a monthly salary of $400 each. He projects his monthly
production function to be
Q = 5KL
where Q is tons of donuts.
a. With the current level of capital, what is the marginal product of labor? Is the marginal product
diminishing? Explain.
b. If Evren, wishes to make 25 tons of donuts, how many bakers are required given the current level of
capital? How much will it cost to produce this (total cost)?
c. Derive Evren's short-run cost function with K = 1.
d. Derive the marginal cost curve from your answer to c. and show the relationship between the marginal
cost and marginal product of labor.
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