Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 18, Problem 3PA
Subpart (a):
To determine
Calculate marginal product of labor.
Subpart (b):
To determine
Calculate value of marginal product of labor.
Subpart (c):
To determine
Demand and equilibrium price of an apple.
Subpart (d):
To determine
Demand and equilibrium price of an apple.
Subpart (e):
To determine
Demand and equilibrium price of an apple.
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A small specialty cookie company, whose only variable input is labor, finds that the average worker can produce 100 cookies per day, the cost of the average worker is $32 per day, and the price of a cookie is $1.00. Is the firm maximizing profit?
The firm
A. is not maximizing profit because the marginal revenue product of labor is greater than the wage.
B. is not maximizing profit because the marginal revenue product of labor is less than the wage.
C. is maximizing profit because the marginal product of labor is greater than the wage.
D. is not maximizing profit because the price of the output is not equal to the wage.
E. is not maximizing profit because the marginal product of labor is greater than the wage.
A manager hires labour and rents capital
equipment in a very competitive market.
Currently the wage rate is $12 per hour and
capital is rented at $8 per hour, whereas the
marginal product of labour is 60 units of output
per hour and the marginal product of capital is
45 units of output per hour. Show if the firm is
using the cost-minimizing combination of
labour and capital and give appropriate advice if
necessary.
A manager hires labor and rents capital equipment in a very competitive market. Currently the wage rate is $12 per hour and capital is rented at $8 per hour. If the marginal product of labor is 60 units of output per hour and the marginal product of capital is 45 units of output per hour, is the firm using the cost-minimizing combination of labor and capital? If not, should the firm increase or decrease the amount of capital used in its production process?
Chapter 18 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
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Similar questions
- 1.XYZ Co. operates in a competitive market. Its production function is q = LαKβ. The firm takes the wage, rental rate and price as given. a) Derive the firm's conditional labor and capital demand functions. b) How does the firm react to an increase in the wage rate? c) Derive the firm's cost function.arrow_forwardTable 18-7 The table displays data for a small, competitive, profit-maximizing firm that produces and sells envelopes. Assume that labor is the only input that varies for the firm. Labor Marginal Product of Labor (Number of workers) (Boxes of envelopes per week) Wage (Dollars per worker per week) 0 1 147 448 2 123 448 3 105 448 4 95 448 5 90 448 Refer to Table 18-7. Suppose the firm sells each box of envelopes that it produces for $4. What is the marginal profit of the third worker? O $68 O $-28 -$68 $420arrow_forwardExplain it correctly. All subparts a, b, c and d.arrow_forward
- B. Suppose that your production process is characterized by the production function x = f(e) = 100 In ( + 1). For purposes of this problem, assume w > 1 and p > 0.01. a. Set up your profit-maximization problem. b. Derive the labor demand function. C. The labor demand curve is the inverse of the labor demand function with p held fixed. Can you demonstrate what happens to this labor demand curve when p changes? d. Derive the output supply function. e. The supply curve is the inverse of the supply function with w held fixed. What happens to this supply curve as w changes? (Hint: Recall that In x = y implies e' = x, where e ≈ 2.7183 is the base of the natural log.) f. Suppose p = 2 and w profit will you make? = 10. What is your profit-maximizing production plan, and how mucharrow_forward7. The production function for a price-taking firm is given by q = 2.5k0.4L0.4. What are the demand functions for labor 1(v,w.p) and capital k(v,w,p)? [Show your work] 8. The production function for a price-taking firm is given by q = 2.5k0.4L0.4. What is the supply function q(v,w,p)? [Show your work]arrow_forwardThe market for drones is perfectly competitive. Labor is the only variable input. The fixed cost is $500. Based on the information in the table below, what is the Marginal Product of Labour when Q=300? Enter a number only, drop the $ sign. Wage rate =$100 per unit of Labour Quantity Quantity of of Labour Output 8 44 15 213 21 300 43 433arrow_forward
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- Suppose a firm is producing 2,475 units of output by hiring 50 workers (W = $20 per hour) and 25 units of capital (R = $10 per hour). The marginal product of labor and marginal product of capital are 30 and 15, respectively. Is the firm minimizing the cost of producing 2,475 units of output? Explain.arrow_forwardThe market for drones is perfectly competitive. Labor is the only variable input. The fixed cost is $f]. Based on the information in the table below, what is the Marginal Cost when Q=300? Enter a number only, drop the $ sign. Wage rate =$100 per unit of Labour Quantity Quantity of of Labour Output 7 69 14 143 33 300 50 376arrow_forwardSuppose you are considering hiring another worker. Also assume that you are at a firm that is operating at a point where the marginal product of labor is 5 and the price of each unit of labor is $2, and the marginal product of capital is 20 and the price of each unit of capital is $10. Should you hire another worker? If you hire another worker, what will happen to the marginal product of labor and why?arrow_forward
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