Micro Homework #30-Resource markets-Fall 2017 For a competitive firm hiring in a

Question

Micro Homework #30-Resource markets-Fall 2017 For a competitive firm hiring in a competitive labor market, the profit-maximizing rule is to hire labor to the point where: 1. the marginal cost of the last unit of labor hired is zero. the value of the marginal product is equal to the wage rate. marginal product is equal to marginal cost. the value of the marginal product is at a maximum. a. b. c. d. Use the information in the table below to answer the next three questions. 0 11 22 12 3 st 4 755 26 51 24 2. The marginal product (MP) of the fourth worker is , a. 14 26 C. d. 6.6 3. If this firm is selling output in a perfectly competitive market and the price of the output is $2 per unit, then the value of marginal product (VMP) of the third worker is a. $7 b. $8 $19 d. $16 4. If the price of the output is $2 per unit and the wage rate is $14 per hour, this profit-maximizing firm should hire workers. a. 4 b. 5 d. 3 5. Derived demand is best represented by the demand for: a. Homes by consumers b. Airline tickets by vacationers Wood by homebuilders d. Automobiles by auto workers

Explanation / Answer

(1) (b)

Profit maximizing demand for labor condition is: VMPL = MPL x Output price = Wage rate

(2) (c)

MPL = Change in output / Change in workers = (26 - 19) / (4 - 3) = 7/1 = 7

(3) (d)

MPL for 3rd worker = (19 - 11) / (3 - 2) = 8

VMPL = 8 x $2 = $16

(4) (a)

For optimal labor demand, VMPL = MPL x Output price = Wage rate

MPL = Wage rate / Output price = $14 / $2 = 7

From given table, MPL = 7 when 4 workers are hired (See Q2).

(5) (c)

Derived demand is the demand for one input (intermediate good) to produce another input or final good. Wood is an input used in construction of homes.

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