1. Answer the following questions on the basis of the data contained in the foll
ID: 1177116 • Letter: 1
Question
1. Answer the following questions on the basis of the data contained in the following table. Assume that the firm is hiring labor in a purely competitive market.
a) Fill out the table below.
Units of Labor
Total Product
Product Price
Total Revenue
Marginal Revenue Product of Labor
0
0
$2.20
1
15
$2.00
2
28
$1.80
3
39
$1.60
4
48
$1.40
5
56
$1.20
6
60
$1.10
b) How much is added to the firm%u2019s total revenue if the firm hires the 4th worker?
2. Given below are the cost schedules for a perfectly competitive firm.
Average Average
Variable Total Marginal
Quantity Cost Cost Cost
1 $ 50 $ 90 $ 50
2 45 65 40
3 40 53 30
4 35 45 20
5 34 42 30
6 35 41 40
7 37 43 50
8 40 45 60
a) At a product price of $ 40, how many units will this firm produce in the short-run? EXPLAIN. What will be its profits or losses?
b) At a product price of $ 50, how many units will this firm produce in the short-run?
EXPLAIN. What will be its profits or losses?
c) At a product price of $ 60, how many units will this firm produce in the short-run?
EXPLAIN. What will be its profits or losses?
3. Briefly explain why, in economic terms, when the wage rate increases we sometimes see the number of hours worked by individuals decrease.
Units of Labor
Total Product
Product Price
Total Revenue
Marginal Revenue Product of Labor
0
0
$2.20
1
15
$2.00
2
28
$1.80
3
39
$1.60
4
48
$1.40
5
56
$1.20
6
60
$1.10
Explanation / Answer
3. When rage rate increases, the firm's variale cost also inceases. So if individual's working hours decrease, the firm can keep the variable cost same as before.
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