Please no cursive or typed out
1. (65 points total).
a) (5 points) Fill in the Table below.
Number of workers
Units of output
MPN
0
0
1
20
2
38
3
53
4
66
5
77
6
86
7
93
b. (10 points) Define the marginal product of labor and explain how it relates to the production function (with N on horizontal axis and Y on vertical axis). What shape does a production function typically take and why? Does this production function take the 'typical' shape?
c)(5 points) Assume that you sell your output to Europe for a US price = $10. The exchange rate is this time is $1.07 per Euro. What is the price of your product in Euros? Please round to 2 decimal places.
d) (5 points) You can hire all the workers you want at $80 per worker. Along with the US price = $10, calculate the number of workers that you will hire and the associated profit in REAL terms (as we did in class, we 'assume away' all other costs of production). Please give me the marginal REAL profit of each worker hired and then add them up and that is the total profit in real terms.
e)(5 points) Inflation data in the US is weaker than the Fed would like and thus, expectations change such that the Fed is less likely to raise interest rates. As a result, the new and updated exchange rate is $1.23 per Euro. What has happened to the value of the US dollar and what is the new Euro price of your product, assuming that your American price stays at $10?
f).(5 points) Given the change in conditions you decide to raise the price of your product in US dollar terms so that the Euro price stays the same as it was before the change in the exchange rate (part c above). What is the new US dollar price? Please show all work.
g) (10 points) What has happened to the marginal revenue product (MRPN) for each worker (has it gone up or down?) and why given the change in price? Be sure to define what the marginal revenue product is and what it means in 'laypersons' terms.
h) (10 points) Given that the US$ price of your product has changed, explain how and why you would change your behavior. Please provide the intuition beginning your answer with... at the same level of labor input I am no longer ......... (please be as specific as possible). Again, explain in REAL terms, not nominal terms.
i. (5 points) Calculate the new level of profits in REAL terms given the change in condition including the change in the exchange rate, the change in the US $ price of your product. and the change in your behavior.
j)(5 points) The Fed has had its eye on inflation for a long time and have been disappointed in that inflation has been too low. Is the change in the value the dollar vs the Euro a welcome development for the Fed? Why or why not? Assume that these conditions changed in a similar way for many US firms.
Please no cursive or typed out
1. (65 points total).
a) (5 points) Fill in the Table below.
| Number of workers | Units of output | MPN |
| 0 | 0 | |
| 1 | 20 | |
| 2 | 38 | |
| 3 | 53 | |
| 4 | 66 | |
| 5 | 77 | |
| 6 | 86 | |
| 7 | 93 |
b. (10 points) Define the marginal product of labor and explain how it relates to the production function (with N on horizontal axis and Y on vertical axis). What shape does a production function typically take and why? Does this production function take the 'typical' shape?
c)(5 points) Assume that you sell your output to Europe for a US price = $10. The exchange rate is this time is $1.07 per Euro. What is the price of your product in Euros? Please round to 2 decimal places.
d) (5 points) You can hire all the workers you want at $80 per worker. Along with the US price = $10, calculate the number of workers that you will hire and the associated profit in REAL terms (as we did in class, we 'assume away' all other costs of production). Please give me the marginal REAL profit of each worker hired and then add them up and that is the total profit in real terms.
e)(5 points) Inflation data in the US is weaker than the Fed would like and thus, expectations change such that the Fed is less likely to raise interest rates. As a result, the new and updated exchange rate is $1.23 per Euro. What has happened to the value of the US dollar and what is the new Euro price of your product, assuming that your American price stays at $10?
f).(5 points) Given the change in conditions you decide to raise the price of your product in US dollar terms so that the Euro price stays the same as it was before the change in the exchange rate (part c above). What is the new US dollar price? Please show all work.
g) (10 points) What has happened to the marginal revenue product (MRPN) for each worker (has it gone up or down?) and why given the change in price? Be sure to define what the marginal revenue product is and what it means in 'laypersons' terms.
h) (10 points) Given that the US$ price of your product has changed, explain how and why you would change your behavior. Please provide the intuition beginning your answer with... at the same level of labor input I am no longer ......... (please be as specific as possible). Again, explain in REAL terms, not nominal terms.
i. (5 points) Calculate the new level of profits in REAL terms given the change in condition including the change in the exchange rate, the change in the US $ price of your product. and the change in your behavior.
j)(5 points) The Fed has had its eye on inflation for a long time and have been disappointed in that inflation has been too low. Is the change in the value the dollar vs the Euro a welcome development for the Fed? Why or why not? Assume that these conditions changed in a similar way for many US firms.
Related textbook solutions
Related questions
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 |
|||
Below is a table showing the production numbers for a chair factory (where the production numbers are based on chairs being produced per day).
|
Workers |
Total Product (TP) |
Average Product (AP) |
Marginal Product (MP) |
Marginal Revenue Product (MRP) |
|
0 |
0 |
- |
- |
- |
|
1 |
10 |
|
|
|
|
2 |
|
15 |
|
|
|
3 |
|
|
40 |
|
|
4 |
|
35 |
|
|
|
5 |
190 |
|
|
|
|
6 |
|
|
30 |
|
|
7 |
240 |
|
|
|
|
8 |
250 |
|
|
|
|
9 |
|
|
5 |
|
a) Fill in the missing numbers for the TP, AP and MP columns (round to the nearest chair)
b) In one sentence explain what the AP of 4 workers being 35 tells us.
c) In one sentence explain what your answer for MP of the 4th worker tells us.
d) Given the fact that each chair produced in our factory can be sold at the market price of $10 per chair, fill in the MRP column (round to the nearest dollar).
e) In one sentence explain what your answer for MRP for the 4th worker tells us.
f) If the market wage for workers doing manufacturing work (such as chair production) is $180 per day, determine the number of workers this firm should hire to maximize its profit.
Explain your answer using MRP.
