Principles of Economics (MindTap Course List)
8th Edition
ISBN: 9781305585126
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?
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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
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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 (MindTap Course List)
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- 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_forwardSuppose that labor is the only input used by a perfectly competitive firm.The firm's production function is as follows:a.Calculate the marginal product for each additional worker.b.Each unit of output sells for $10.Calculate the marginal product for each additional worker.cCompute the demand for schedule showing the number of workers hired.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_forward
- Explain it correctly. All subparts a, b, c and d.arrow_forwardB. 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_forward
- Marginal Product |of Labor (haircuts) Workers 1 4 2 3 4 1 0.5 The above information is the production function for a barber shop that operates in perfectly competitive markets. The wage rate is $15 and the price of a haircut is $8. How many workers should the shop hire to maximize profit? 3 2 4 O 1arrow_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_forwardNew taskFor a producer under complete competition, the following production function applies. Q = F (K, L) = KL where Q is the size of production, K is the size of the capital investment and L is the amount of labor. Assume that the price of capital, r, is 5 and that the salary, w, is 10. a) Assume initially that the capital is locked at 4 units. How much labor will the producer use to produce 50 units of the final product? What will be the total cost of producing these 50 units? b) For the production function above applies The marginal product for work MPL = K The marginal product for capital MPK = L Enter the cost-minimizing combination of capital and labor in the production of 50 units. Also enter the size of the costs. c) Write down the equation for the isocost line for the manufacturerarrow_forward
- J 4arrow_forwardIn the short run, a tool manufacturer has a fixed amount of capital. Labor is a variable input. The cost and output structure that the firm faces is depicted in the table below. Assume the product price is $4. Calculate the marginal revenue product and the marginal resource cost, and then complete the table. Instructions: Enter your answers as whole numbers. Quantity of Labor Marginal Product Marginal Revenue Hourly Wage Rate ($) Marginal Resource Total Product Total Labor Product ($) Cost ($) (Labor) Cost ($) 10 400 5 50 es 11 420 20 8. 88 12 438 18 11 132 13 454 16 14 182 14 468 14 17 238 15 480 12 20 300 The equilibrium wage rate ($) = The equilibrium level of labor use = workersarrow_forwardA. Consider a firm who sells output at p=10 and has a short run production function Q(L)=20L-L2. Its wage rate is w=40. Suppose the firm sells in a perfectly competitive market and is a price taker in the input market, how much labor will it hire to maximize profits?arrow_forward
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