Use the folowing to answer question 32: Table 13.4 0 Workers per dayn(Cappuccino

Question

Use the folowing to answer question 32: Table 13.4 0 Workers per dayn(Cappuccinos per hour) 10 15 19 2 4 24 25 Page 8 32. Table (13.4). Suppose that the wage rate for baristas is $9 per hour and the average price of cappuccino is $3. a. Find the profit-maximizing quantity of labor. b. What would be the new profit-maximizing quantity of labor if the market wage increased $12 per hour, ceteris paribus? c. What would be the new profit-maximizing quantity of labor if the market wage remained at S9 per hour but the price ofcappuccino increased to $4.50, ceteris paribus? d. What would be the new profit-maximizing quantity of labor if the market wage remained at $9 per hour and the price of cappuccino at $3 but baristas all became 10% more productive because of an improvement in the way cappuccinos are made

Explanation / Answer

L Q MP vMPL vMPL(P=$4.5) Q2 vMPL2 0 0 0 0 0 1 10 10 30 45 11 33 2 15 5 15 22.5 16.5 16.5 3 19 4 12 18 20.9 13.2 4 22 3 9 13.5 24.2 9.9 5 24 2 6 9 26.4 6.6 6 25 1 3 4.5 27.5 3.3 a) AT w = $9, Labour employment L=4, where w = vMPL b) w = $12, Labour employment L = 3, where w = vMPL c) w = 9, L = 5 where vMPL = w = 9 d) at w = $9, labour employment L = 4 where vMPL>w

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