Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Chapter 4, Problem 2RQ
To determine
Explain the profit maximization rule that firms follow when they decide how much capital and labor to hire.
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- Consider a profit-maximizing cotton candy firm that operates in a perfectly competitive output and labor market. Suppose there is a decrease in the price of good X, and the cross-price elasticity of demand for cotton candy with respect to good X is positive. How does this impact: a. the wage paid to cotton candy workers b. the amount of labor hired by the cotton candy firm? Explain and show using well-labelled graphs.arrow_forwardComplete the following statement about the marginal productivity theory. For a firm that is a factor price taker, _____ , And firms hire the factor quantity at which _____. Thus, it follows that _____. Suppose that Manuel works for Clear Drop Co, a perfectly competitive firm producing water filters. Manuel was paid $3,000 but found a better job and quit Clear Drop. Since nothing else changed, Clear Drop's total revenue _____. Blank 1: a. MFC = P b. MFC = 0 c. MFC < P d. MFC > P Blank 2: a. MRP = MFC b. MRP = 0 c. MRP < MFC d. MRP > MFC Blank 3: a. W = MRP b. W < MRP c. W > MRP Blank 4: a. does not change as well b. falls by $1,500 c. falls by $3,000 d. rises by $1,500 e. rises by $3,000arrow_forwardIn the short run, a tool manufacturer has a fixed amount of capital. Labor is a variable input. The cost and output structure that the firm faces is shown in the table below. Calculate the total labor cost and the marginal resource cost, and then fill in the blanks in the labor supply table. Instructions: Enter your answers as a whole number. Marginal Resource Total Labor Units of Labor Total Product Wage Rate Cost (Labor) Cost 10 400 $9 11 416 12 12 430 15 13 442 18 14 452 21 15 460 24arrow_forward
- Suppose that labor is the only input used by a perfectly competitive firm that can hire workers for $500 per week. Complete the table below, when each unit of output sells for $10. What amount of labor force should be hired? Explain!arrow_forwardStephanie produces earrings. She sells each pair of earrings for $5. The table below shows how many pairs of earrings can be produced, depending on the number of workers Stephanie hires. Fill in the "Total Revenue" and "Marginal Revenue Product" columns using the information given. Assume this is a perfectly competitive market. Instructions: Enter your answers as a whole number. Stephanie's Earring Shop and Revenues Labor Total Product (pairs of (workers) 8 1 2 3 4 5 6 7 earrings) 0 28 44 58 71 82 90 95 Marginal Product (pairs of earrings) 28 16 14 13 11 8 5 Price (dollars) $5 5 5 5 5 5 5 5 Total Revenue (dollars) $0 Marginal Revenue Product (dollars) $arrow_forwardCalculate the size of the workforce needed for the companyto meet average weekly demand.arrow_forward
- You own a small sandwich shop with two employees. They've asked you to consider hiring additional workers for the lunch shift, but you are concerned that doing so may cut into you're profits. Using the table below, calculate the marginal product, value of marginal product, and marginal profit of hiring additional workers. What action should you take (choose one) A. Hire two more employees B. Hit one more employee C. Fire one employee D. Do not hire anyonearrow_forwardLabor demand In the long-run:describe what a firm will do when its long-run condition is not met, i.e, when will it hire more or less labor?arrow_forwardSuppose LA.Banana employs workers to harvest bananas. Answer the following questions using the information provided below: Quantity of labour: 0 labour 1 labour 2 labour 3 labour 4 labour 5 labour 6 labour Units of Output: 0 banana 16 banana 21 banana 25 banana 31 banana 36 banana 40 banana a.) Calculate the marginal product of labor, the value of the marginal product of labor, and the marginal profit ,suppose a fully competitive company, LA"Banana, where wages are fixed at $800 and each banana (output) sells for $20.arrow_forward
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