ECON 1B03 Chapter Notes - Chapter 1: Perfect Competition, Marginal Product, Takers

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ECON 1B03 Full Course Notes

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Chapter 18: the market for factors of production. There are markets for all the resources needed to make final goods and services. We have markets for labour, land and capital where buyers (firms) come together with suppliers (households) and prices and quantities traded are established. Labour markets are governed by the forces of supply and demand. Market is perfectly competitive (buyers and sellers are price takers) the firm has no control over wage. wage is determined by market supply and demand. When a firm decides how many workers to hire, it considers how much each worker would contribute to its profit. The profit from an additional worker is her contribution to total revenue minus her wage. A workers contribution to tr is her mp (what she adds to total output) times the selling price of the output, p. This is the value of the marginal product of labour, vmpl.

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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Question 1

The following table is a record of the data of a competitive firm on labour and output:

Unit of labour	Total product	Marginal product of labour (MPL)	Value of marginal product of labour (VMPL)
0	0
1	10
2	22
3	32
4	39
5	42
6	41

Suppose the product price is $5 and the market wage per unit of labour is $35.

a Reproduce the above table on your answer sheet and complete the table.

b How many units of labour should be employed to maximise profit? Briefly explain your answer.

The following table is a record of the data of a competitive firm on labour and output:

Unit of labour Total product MPL VMPL

0 0

1 10

2 22

3 32

4 39

5 42

6 41

Suppose the product price is $5 and the market wage per unit of labour is $35.

a) Reproduce the above table on your answer sheet and complete the table. (6 marks)

b) How many units of labour should be employed to maximise profit? Briefly explain your answer. (8 marks)

ECON 1B03 Chapter Notes - Chapter 1: Perfect Competition, Marginal Product, Takers

ECON 1B03 Full Course Notes

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