 | Economics 14/e McConnell | |||||
|---|---|---|---|---|---|---|
| Online Learning Center |  | |||||
| Economics 14/e McConnell | |||||
|---|---|---|---|---|---|---|
| Online Learning Center | | |||||
27-2 Complete the following labor demand table for a firm which is hiring labor competitively and selling its product in a competitive market.
| Units of Labor | Total Product | Marginal Product | Product price | Total revenue | Marginal revenue product |
| 0 | 0 | $2 | $______ | ||
| 1 | 17 | ______ | 2 | ______ | $______ |
| 2 | 31 | ______ | 2 | ______ | ______ |
| 3 | 43 | ______ | 2 | ______ | ______ |
| 4 | 53 | ______ | 2 | ______ | ______ |
| 5 | 60 | ______ | 2 | ______ | ______ |
| 6 | 65 | ______ | 2 | ______ | ______ |
a. How many workers will the firm hire if the market wage rate is $27.95? $19.95?
Explain why the firm will not hire a larger or smaller number of units of labor at each of
these wage rates.
b. Show in schedule form and graphically the labor demand curve of this firm.
c. Now redetermine the firm’s demand curve for labor
assuming that it is selling in
an imperfectly competitive market and that
although it can sell 17 units at $2.20 per
unit
it must lower product price by 5 cents to sell the marginal product of each
successive labor unit. Compare this demand curve with that derived in question 2b. Which
curve is more elastic? Explain.
27-3 What factors determine the elasticity of resource demand? What effect will each of the following have on the elasticity or the location of the demand for resource C which is being used to produce commodity X? Where there is any uncertainty as to the outcome specify the causes of that uncertainty.
a. An increase in the demand for product X
b. An increase in the price of substitute resource D
c. An increase in the number of resources substitutable for C in producing X
d. A technological improvement in the capital equipment with which resource C is combined
e. A decline in the price of complementary resource E
f. A decline in the elasticity of demand for product X due to a decline in the
competitiveness of the product market
27-4 Suppose the productivity of capital and labor are as shown at the top of the next column. 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 Capital |
MP of capital | Units of Labor |
MP of Labor | ||
| 0 | 0 | ||||
| 1 | ]------ | 24 | 1 | ]------ | 11 |
| 2 | ]------ | 21 | 2 | ]------ | 9 |
| 3 | ]------ | 18 | 3 | ]------ | 8 |
| 4 | ]------ | 15 | 4 | ]------ | 7 |
| 5 | ]------ | 9 | 5 | ]------ | 6 |
| 6 | ]------ | 6 | 6 | ]------ | 4 |
| 7 | ]------ | 3 | 7 | ]------ | 1 |
| 8 | ]------ | 1 | 8 | ]------ | 1/2 |
a. What is the least-cost combination of labor and capital the firm should employ in
producing 80 units of output? Explain.
b. What is the profit-maximizing combination of labor/capital the firm should use?
Explain. What is the resulting level of output? What is the economic profit? Is this the
least costly way of producing the profit-maximizing output?
27-5 In each of the following four cases MRPL and MRPC refer to the marginal revenue products of labor and capital respectively and PL and PC refer to their prices. Indicate in each case whether the conditions are consistent with maximum profits for the firm. If not state which resource(s) should be used in larger amounts and which resource(s) should be used in smaller amounts.
a. MRPL = $8; PL = $4; MRPC = $8; PC = $4
b. MRPL = $10; PL = $12; MRPC = $14; PC = $9
c. MRPL = $6; PL = $6; MRPC = $12; PC = $12
d. MRPL = $22; PL =5 $26; MRPC = $16; PC = $19
Answers:
| 27-2 Marginal product data top to bottom: 17; 14; 12; 10; 7; 5. Total revenue data top to bottom: $0; $34; $62; $86; $106; $120; $130. Marginal revenue product data top to bottom: $34; $28; $24; $20; $14; $10. (a) Two workers at $27.95 because the MRP of the first worker is $34 and the MRP of the second worker is $28 both exceeding the $27.95 wage. Four workers at $19.95 because workers 1 through 4 have MRPs exceeding the $19.95 wage. The fifth worker's MRP is only $14 so he or she will not be hired. (b) The demand schedule consists of the first and last columns of the table:
(c) Reconstruct the table. New product price data top to bottom: $2.20; $2.15; $2.10; $2.05; $2.00; $1.95. New total revenue data top to bottom: $0; $37.40; $66.65; $90.30; $108.65; $120.00; $126.75. New marginal revenue product data top to bottom: $37.40; $29.25; $23.65; $18.35; $11.35; $6.75. The new labor demand is less elastic. Here MRP falls because of diminishing returns and because product price declines as output increases. A decrease in the wage rate will produce less of an increase in the quantity of labor demanded because the output from the added labor will reduce product price and thus MRP.
|
 |
| 27-3 Four factors: the rate at which the resource's MP declines; the ease of substituting other resources; elasticity of product demand; and the ratio of the resource cost to the total cost of production. (a) Increases the demand for C. (b) The price increase for D will increase the demand for C through the substitution effect but decrease the demand for all resources -- including C -- through the output effect. The net effect is uncertain; it depends on which effect outweighs the other. (c) Increases the elasticity of demand for C. (d) Increases the demand for C. (e) Increases the demand for C through the output effect. There is no substitution effect. (f) Reduces the elasticity of demand for C.
|
|
| 27-4 (a) 2 capital; 4 labor. MPL/PL = 7/1; MPC/PC = 21/3 = 7/1. (b) 7 capital and 7 labor. MRPL/L = 1 (=
1/1) = MRPC/
|
|
| 27-5 (a) Use more of both; (b) use less labor and more capital; (c) use maximum profits obtained; (d) use less of both. |
|
MHHE Home | About MHHE | Help Desk | Legal Policies and Info | Order Info | What's New | Get Involved
