Economics 2152A/B Lecture Notes - Real Wages, Marginal Revenue, Marginal Product

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cyanllama84

15 Nov 2012

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The demand for labour (demand for & supply of labour) Over a short period of time, the economies capital stock can be assumed as fixed. The amount of labour employed changes fairly quickly. Employment at the firm level, eg. we consider individual firm decision in hiring. Assumptions: to earn the highest possible level of profit, wages are determined in a competitive market (not set by firms, workers (in any class) are all alike. Marginal product of labour (mpn) and labour demand. Mpn, measures the contribution to the total output of an additional worker (in terms of extra output) Marginal revenue product of labour(mrp) = mpn x px. General: real wage = nominal wage/price index (eg cpi) The mpn diminishes as the firm hires more labour. Quantity on x axis, w is on the y axis. Given mpn and w* the firm hires n* to maximize its profit. When w changes firm observes a movement along its labour demand.

Related Questions

1. In a perfectly competitive industry, an individual firm faces:

a. a perfectly elastic labour supply curve

b. a perfectly inelastic labour supply curve

c.a perfectly vertical labour supply curve

d.none of the above

2. A firm purchases more capital equipment. We would expect to observe:

a. an increase in the supply of labour for this firm

b. a decrease in the supply curve of labour for this firm

c.an increase in the wage rate paid for labour by this firm

d.an increase in the demand for labour by this firm

3. Which of the following would be h most likely outcome if all perfectly competitive firms in a product market join together to form a monopoly?

a. the rate of output in the market will increase but the quantity of labour input will decrease

b.both the rate of output and the quantity of labour input employed will increase

c.the rate of output in the market will decrease but the quantity of labour input will increase

d.both the rate of output and the quantity of labour input employed will decrease

4. what does the marginal revenue product equal when 28 workers are hired in one week?

Labor input (workers per week)__Marginal physical product (output per week)__marginal revenue

25_______________________150_________________________________9.00

26_______________________140_________________________________8.50

27_______________________130_________________________________8.00

28_______________________120_________________________________7.50

29_______________________110________________________________7.00

a. $210

b.$7.50

c.$900

d.$1040

5. The profit-maximizing firm will hire additional workers until:

a. the extra revenue by the last workers hired equals zero

b.the extra cost associated with hiring the last worker equals the price of goods produced

c.the additional cost associated with hiring the last worker equals the average wage rate of workers

d.the additional cost associated with hiring the last worker equals the additional revenue generated by that worker.

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1. Marginal resource cost is

A) the increase in total resource cost associated with the production of one more unit of output.

B) the increase in total resource cost associated with the hire of one more unit of the resource.

C) total resource cost divided by the number of inputs employed.

D) the change in total revenue associated with the employment of one more unit of the resource.

2. Which of the following increases in labour demand is due to a change in the price of a related resource?

A) Software sales rise, thus increasing the demand for software developers.

B) Snowboarding increases in popularity, thus increasing the demand for the workers who make snowboards.

C) A decrease in the price of wood decreases the cost of furniture, thus increasing the demand for furniture workers.

D) A technological change increases output per worker in the computer industry, thus increasing the demand for computer workers.

3 The labour demand curve of a firm

A) will shift to the left if the price of the product the labour is producing falls.

B) is perfectly elastic if the firm is selling its product in a purely competitive market.

C) reflects a direct relationship between the number of workers hired and the money wage rate.

D) is the same as its marginal product curve.

beigealligator720

Labor Output Price (D1) Price (D2)

0	0	10.00	10.00
1	15	10.00	9.50
2	29	10.00	9.00
3	42	10.00	8.50
4	54	10.00	7.50
5	65	10.00	6.50
6	75	10.00	5.50

1. Suppose the firm's product demand is given by the column labelled D1. If the wage rate is $100, the firm will achieve maximum profit by hiring _____ workers.

a. 3 b. 4 c. 5 d. 6

2. Suppose the firm's product demand is given by the column labelled D1. If the wage rate rises from $100 to $130, the firm will reduce the quantity of labour employed by _____ unit(s)

a. 0 b. 1 c. 2 d. 3 16.

3.Suppose the firm's product demand is given by the column labelled D1. If the wage rate is $120, the firm will achieve maximum profit by hiring _____ workers.

a. 3 b. 4 c. 5 d. 6 3 17.

4. Suppose the firm's product demand is given by the column labelled D1. The value of the marginal product of the fourth worker is:

a. $10 b. $54 c. $120 d. $540 18.

5. Suppose the firm's product demand is given by the column labelled D2. If the wage rate is $100, the firm will achieve maximum profit by hiring _____ workers

a. 2 b. 3 c. 4 d. 5 19.

6. Suppose the firm's product demand is given by the column labelled D2. The extra revenue generated by the fourth worker is:

a. $1 b. $12 c. $48 d. $405 20.

7. Suppose the firm's product demand is given by the column labelled D2. If the wage rate rises from $100 to $130, the firm will reduce the quantity of labour employed by _____ unit(s).

a. 0 b. 1 c. 2 d. 3 21.

8. Compared to a firm facing D1, a firm facing demand schedule D2 but paying the same wage will hire:

a. the same number of workers, since the total product is the same in both instances

b. fewer workers, since product price declines as output increases

c. more workers, since product price declines as output increases

d. more information is required

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Economics 2152A/B Lecture Notes - Real Wages, Marginal Revenue, Marginal Product

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