1. In January, 2016, the civilian population 16 years old and older was 252,397,
ID: 1135263 • Letter: 1
Question
1. In January, 2016, the civilian population 16 years old and older was 252,397,000. The number employed was 150,544,000 and the number unemployed was 7,791,000.
a.How many people were in the labor force?
b.How many people were out of the labor force?
c.What was the labor force participation rate?
d.What was the unemployment rate?
2. Consider the following table of output generated by different numbers of workers at a firm.
Number of workers
Output per hour
Marginal product of labor
Marginal revenue product of labor
For numbers of workers from 6 to 10, fill in the marginal product of labor and the marginal revenue product of labor assuming the product price is $8. (For example, for 6 workers the marginal product of labor would be 16 minus 10.) In the short run, if the wage rate is $30 per hour, how many workers should the firm hire? (Assume a competitive labor market.)
3.Suppose a firm uses 100 units of capital at $150 per unit per month, and 50 workers at $2000 per worker per month. Suppose the marginal product of capital is 200 units of output per month, and the marginal product of labor is 3000 units of output per month.
a.What would be the additional cost of increasing output by 1000 units by adding labor?
b.What would be the additional cost of increasing output by 1000 units by adding capital?
c.In the long run, would it be cheaper to expand output by increasing capital or increasing labor?
d.Is the firm minimizing costs with its levels of capital and labor?
e.Would it be cheaper to increase output in the short run or the long run?
4. Suppose production at a firm depends on labor and capital, with prices w and r, respectively. Initially the firm faces market prices of w = $10 and r = $8. These prices then shift to w = $8 and r = $6.
a.In what direction will the substitution effect change the firm’s employment and capital stock?
b.How will the scale effect change the firm’s employment and capital stock?
c.Can we say conclusively whether the firm will use more or less labor?
d.Can we say conclusively whether the firm will use more or less capital?
5. In the market for lathe operators, suppose the number employed at $20 an hour would be 120,000 and the number employed at $25 an hour would be 110,000.
a.What is value of the own-elasticity of demand?
b.If the wage is $25 an hour, everything else the same, how much should the wage decline to increase employment in the labor market by ten percent?
Number of workers
Output per hour
Marginal product of labor
Marginal revenue product of labor
5 10 6 16 7 21 8 25 9 28 10 30Explanation / Answer
1. a) Labor force = Employed + Unemployed = 150,544,000 + 7,791,000 = 158335000
b) Not in labor force = Civilian population - Labor force = 252,397,000 - 158335000 = 94062000
c) Labor force participation rate = Labor force/ Adult population x 100
= 158335000/252397000 x 100 = 62.73%
d) Unemployment rate = Unemployed / Labor force x 100 = 7791000/158335000 x 100
= 4.92%
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