Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 25, Problem 4CQ
To determine
Explain whether productivity gains the major source of higher wages.
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At a fast food restaurant, the hourly wage is $9 per worker. The restaurant employs 15 workers per hour, and the marginal product of labour is 3 burgers per hour. The price of a single with cheese, which we pretend is the only thing the restaurant sells, is $3.50. Is the restaurant maximizing profit? If not, would it increase profits by hiring more workers or fewer workers?
Suppose a firm purchases labor in a competitive labor market and sells its product in a competitive product market. The firm’s elasticity of demand for labor is -0.4. Suppose the wage increases by 5 percent. What will happen to the number of workers hired by the firm? What will happen to the marginal productivity of the last worker hired by the firm?
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Economics: Private and Public Choice (MindTap Course List)
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- Why does a profit-maximizing firm hire workers up to the point where the wage equals the value of marginal product? Show that this condition is identical to the one that requires a profit-maximizing firm to produce the level of output where the price of the output equals the marginal cost of production.arrow_forwardGive typing answer with explanation and conclusion Workers in a certain occupation will soon require a government issued licence to legally practice in that occupation. To get the new licence workers will need to study and pass an ex*m and then pay for a licence. Employers who provide this service will need to close their shop unless they employ these licensed employees to serve the public. Based on this information: a) Briefly discuss how in the near term this new development will change the Supply of labour in this occupation. b) Briefly discuss how in the near term this new development will change the Demand for labour in this occupation. c) Briefly discuss how this development will affect the equilibrium wage rate and the number of workers employed in the occupation.arrow_forwardThe following chart shows the number of workers and hourly wage rate required to produce different quantities of braking systems in an hour. 15 9 13 15 2.89 4.00 4.70 6.43 7.27 Quantity of Output (Q) 2 Workers (L) Wage Rate Per Hour 15.28 15.28 15.28 15.28 15.28 Calculate the cost of producing nine braking systems in an hour. Round your answer to the nearest cent. Provide your answer below:arrow_forward
- Complete the following table with the profit-maximizing quantity of labor each salon will hire, along with the wage it will pay for each hour of labor. Labor Wage Town 1 Town 2 In Town 1, the salon pays a wage that is wage is the marginal value product of the final unit of labor hired, whereas in Town 2, the the marginal value product of the final unit of labor hired. The outcome in with respect to changes in the wage. is farther from that of a competitive market, given that the supply of labor is elastic (at the market equilibrium)arrow_forwardConsider a profit-maximizing cotton candy firm that operates in a perfectly competitive output and labor market. Suppose there is a decrease in the price of good X, and the cross-price elasticity of demand for cotton candy with respect to good X is positive. How does this impact: a. the wage paid to cotton candy workers b. the amount of labor hired by the cotton candy firm? Explain and show using well-labelled graphs.arrow_forwardThe graph above shows a labor market and a typical individual firm that is hiring labor from that market. (a) If WM = WF, from what type of labor market does the firm hire its workers? (b) Assume the productivity of workers increases as a result of improvement in technology. What will happen to each of the following in the short run? The market demand for labor (i) The wage rate the firm will pay Explain.arrow_forward
- Jumbo Enterprises is the sole producer of jumbo jets in the economy. Demand for jets is given by y=2122-201p, where y is the number of jets and p is the price of a jet. The number of jets that Jumbo produces is a function of the number of engineers (N) that it hires. This function is given by y=0.8N. Engineers are hired in a competitive labor market, where the wage is equal to $6. Find Jumbo Enterprise's profit-maximizing choice of N. Answer:arrow_forwardWhich of the following would increase the supply of labor? There’s a decrease in the number of workers The amounts of capital firms have increases The productivity of workers increases Immigration increases the number of workersarrow_forwardThe graph above shows a labor market and a typical individual firm that is hiring labor from that market. (a) If WM = WF, from what type of labor market does the firm hire its workers? (b) Assume the productivity of workers increases as a result of improvement in technology. What will happen to each of the following in the short run? The market demand for labor (i) The wage rate the firm will pay Explain.arrow_forward
- Q4. Suppose the firm sells its output according to the following demand schedule: Labor Total Product Product Price 1 X+2 (Z+3)/10 2 18 2.8 29 2.30 4 30 1.20 How many workers will be hired at a wage of $7 to maximize the profit?arrow_forward Time remaining: 01:59:36 Economics Operum is a firm that hires unskilled laborers in a perfectly competitive factor market. (a) Draw side-by-side graphs for the whole labor market and for Operum. Label the market supply SL, the market demand DL, the equilibrium wage WE, the equilibrium quantity QE, the wage paid by Operum WO, and the quantity hired by Operum QO. (b) Is WE greater than, equal to, or less than the marginal factor cost of unskilled labor at QO? Explain. (c) The government institutes an effective minimum wage for unskilled labor. Illustrate this on your graphs from part (a). Label the minimum wage WMin. On the graph for Operum, label the new quantity of unskilled labor employed QMin. (d) Ceteris paribus, how will the minimum wage from part (c) affect the market's demand for unskilled labor and its quantity demanded unskilled labor—will each increase, decrease, or stay the same? Explain. (e) Will the minimum wage cause the marginal revenue product of Operum's last…arrow_forwardUtilize the following information to answer the following question, which assumes perfectly competitive markets: Wage (MFC):$40 Price of good sold (P):$2 Marginal physical product (MPP) from the 8 th workers hired: 20 Question: Should the firm increase the amount of workers hired? A. Yes, due to the fact MRP>MFC. Therefore, a firm can maximize profits by hiring additional workers. B. Yes, due to the fact MFC=MRP. Therefore profits can be increased by hiring additional workers. C. No, the firm should hire exactly 8 workers because at that point MRP=MFC; which is the profit maximizing level of labor hired. D.No. the firm should hire exactly 8 workers because at that point MRP>MFC; which is the profit maximizing level of labor hired.arrow_forward
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