ECON 1 Lecture Notes - Lecture 15: Marginal Product, Product Rule

45 views3 pages

whitemarten979

2 Nov 2018

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

elihung and 37582 others unlocked

ECON 1 Full Course Notes

Verified Note

85 documents

Document Summary

Econ 1 - lecture 15 - marginal product. Developing a theory of firm"s demand for labor. A firm employs workers to produce output to sell. The more workers, the more output, the more revenue. The competitive assumption: everyone works for the same wage. If the wage is , i should hire 2 people because each worker would add of revenue each. If wage is , i should hire 3 since each worker adds . Marginal product of labor: the extra output produced by an extra unit of labor. Marginal value product of labor: the extra revenue that a firm receives from the output produced by an extra unit of labor. If a firm must produce a positive amount of output, it maximizes profit by hiring enough labor so that: The marginal value product of the last worker hired is at least as large as the wage, and.

Related Questions

Use the information given in the table below to answer the following question(s). Assume the firm hires labor competitively and sells its product in a competitive price-taker market at a price of $2 per unit.

Units of Labor	Total Output
1	6
2	11
3	15
4	18
5	20
6	21

a) What is the Marginal Revenue Product of the 5th unit of labor?

b) If the market wage is $5 per day, how many workers should the firm employ if it wants to maximize profits?

c) If the market wage rate rose to $7 per day, how many workers should the firm employ if it wants to maximize profits?

The Zippy Paper Company has no control over either the price of paper or the wage it pays its workers. The following table shows the relationship between the number of workers Zippy hires and total output:

Assuming the selling price is $10 per box, answer the following questions:

a. What is the marginal revenue product (MRP) of each worker?

b. How many workers will Zippy hire if the wage rate is $100 per day?

c. How many workers will Zippy hire if the wage rate is $75 per day?

d. Assume the wage rate is $75 per day and the price of a box of paper is $20. How many workers will Zippy hire?

You should start by duplicating the chart on your sheet. You will then need to find the marginal product. Multiplying the marginal product by the price will give you the marginal revenue product.

Labor Input (workers per day)	Total Output (boxes of paper per day)	Marginal Product	Price	MP x P = MRP Marginal Revenue Product
0	0

1	15

2	27

3	36

4	43

5	48

tanhyena562

Suppose there are two types of workers. Type 1 workers have a marginal product of labor (MP_L) = 1. That is, if a firm hires an extra Type I worker, that worker will produce 1 extra unit of output. Type II workers have an MP_L = 2. The firm can sell each extra unit of output for P = $10,000.

Firms are unable to identify whether or not a worker is a Type I or Type II unless the worker sends a signal of what type they are. The signal that workers can send is a level of education, e. The firm adopts the following hiring strategy:

If e > e* then offer the worker a wage rate equal to $20,000.

If e < e* then offer the worker a wage rate equal to $10,000.

The cost to Type I workers of getting education level e is $4000*e. The cost to Type II workers of getting education level e is $2000*e. Assuming the workers optimally choose e, characterize the values of e* that will lead to a separating equilibrium.

bronzemarten122

ECON 1 Lecture Notes - Lecture 15: Marginal Product, Product Rule

ECON 1 Full Course Notes

Document Summary

Get access

Related Documents

ECON 1 Lecture Notes - Lecture 15: Marginal Product, Product Rule

ECON 1 Lecture Notes - Lecture 15: Monosomy, Marginal Product, Demand Curve

ECON 1 Lecture Notes - Lecture 16: Marginal Product, Product Rule

Related Questions