Principles of Microeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (12th Edition)
12th Edition
ISBN: 9780134421315
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 7, Problem 2.8P
(a)
To determine
The changes in the marginal product of labor.
(b)
To determine
The changes in marginal product of labor.
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Following is information on the production levels of three different firms. Firm A is currentlyproducing at a quantity where it is experiencing increasing returns. Firm B is currentlyproducing at a quantity where it is experiencing diminishing returns. Firm C is currentlyproducing at a quantity where it is experiencing negative returns.a. If each of the firms cut back on its labor force, what will happen to its marginalproduct of labor? And why?b. If each of the firms adds to its labor force, what will happen to its marginal product oflabor? And why?
The Labor Market
The following two graphs show the labor market condition in an industry of a hypothetical
country. The firms in this country are perfectly competitive in the output market. The labor
market is also perfectly competitive. Assume that each workday has 8 hours in it and there are
20 workdays in a month. Now let's do some number crunching.
Demand Side of the Market
The following graph shows marginal product of labor (MPL) faced by an individual firm. For
example, it shows that the first worker hired will produce 110 units of the product. The second
worker will produce 100 units. There are 1,000 identical firms in the industry. The market price
of the product produced is $40 per unit.
MPL
130
120
110
100
90
80
70
60
50
40
30
20
10
0
0
1
2
3
4.
5
6
7
9
10
11
Labor (Persons)
Suppose the productivity of capital and labor are as shown in the table below. The output of these resources sells in a purely
competitive market for $1 per unit. Both capital and labor are hired under purely competitive conditions at $3 and $1, respectively.
Units of
MP of
Units of
MP of
Capital
Сapital
Labor
Labor
24
11
1
1
21
9
2
18
8
3
15
7
4
4
6
6.
3
1
7
7
1
0.5
8
CO
LO
Co
CO
Chapter 7 Solutions
Principles of Microeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (12th Edition)
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Similar questions
- Imagine you own a business firm with a friend of yours. During the first quarter you come up with the following information that: • Output elasticity of Capital is 0.2 • Output elasticity of Labour is 0.8 • Rate of Technological advancement is 12 a) What kind of business firm is the one that you own? Mention 2 of its characteristics. b) Derive the marginal productivity of capital and labour, by means of Cobb- Douglas production function. c) If Y = F (K, L) where K= 1000 and L= 400, determine the values of MPx and %3D MPL.arrow_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_forwardWhat is the technological difference between straight line and strictly concave production curves? Show and explain.arrow_forward
- Producer Theory A firm has the following Production Function: Q=3K²L² and w=P₁= $10 r=P = $90 a) If the profit maximizing firm is committed to producing output Q = 6300 units at least cost, what are the optimal amounts of capital and labour the firm should employ? Illustrate your answerarrow_forwardTable 18-8 The following table shows the production function for a particular business. The numbers represent the various labor and output combinations the firm may choose for its output on a daily basis. Labor Output 0 0 70 130 180 220 250 123 4 5 Refer to Table 18-8. Suppose this firm charges a price of $5 per unit of output and pays workers a wage equal to $160 per day. How many workers should this firm hire to maximize its profit? 2 workers 3 workers 4 workers 5 workersarrow_forwardAssume that you are studying an economy which produces two goods, x and y, using two factors of production, capital K and labour L. The economy’s overall quantities of the two factors are given, and the capital intensity (the capital-to-labour ratio) in the production of y is always higher than the capital intensity in the production of x. At present there is an excess supply of y. Explain and illustrate graphically what will happen in the long run to:1) Prices of goods and production.2) factor prices and factor use intensities in each sector.arrow_forward
- Solve it all on paper!arrow_forwardCon Co. produces a collectible card game. Currently, the price of capital is at $50 and the price of labor is at $10. The marginal product of capital is 200 and the marginal product of labor is 30. To minimize cost of the given output, Con Co. should Use more capital Use more capital and labor Leave capital and labor as is Use more laborarrow_forwardExplain what you understand partial equilibrium analysis to be. Describe what the term "labour productivity" means.arrow_forward
- In 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 shown in the table below. Calculate the total labor cost and the marginal resource cost, and then fill in the blanks in the labor supply table. Instructions: Enter your answers as a whole number. Marginal Resource Total Labor Units of Labor Total Product Wage Rate Cost (Labor) Cost 10 300 $16 11 316 18 12 330 20 13 342 22 14 352 24 15 360 26arrow_forwardAs the productivity of labor rises, so will the demand for labor. True – False: Explainarrow_forwardSuppose that Tim runs his own lawn care service and that his firm is competitive in the lawn care industry. He has a fixed number of tools that can be used to maintain a yard, but he needs to determine the productivity gained from hiring various numbers of workers per week. Which of the following statements best represents the idea behind the marginal product of labor ( MPL )? When Tim hires more workers, he can mow more lawns per week, but at a decreasing rate. If Tim hires twice as many workers per week, he can mow twice as many lawns per week. If Tim buys one more lawn mower, he can mow 13 more lawns per week. If Tim hires an additional worker per week, he can mow 11 more lawns per week. The following graph portrays the weekly total product curve for lawn mowing given a fixed amount of capital and varying labor inputs. (Note: Each black point (plus symbol) represents a point on the total product curve.) 100 90 во 70 60 50 40 30 20 10 xxxx_ Total Product ° 0 1 2 4 5 7 8 10 LABOR…arrow_forward
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