Question 1

XYZ Co.operates in a competitive market.Its production function is q = L^αK^β.The exponents,α and β,are both less than 1.The firm's capital is fixed,and it takes the wage and price as given.Derive the firm's short-run demand for labor as a function of K,w,and p.How does the firm react to an increase in the wage rate?

Accepted Answer

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Question 2

In the short run,a competitive firm has a marginal product of labor,MPL = 8L^-0.5.The output price is $16 per unit and the wage is $2 per hour.At the profit-maximizing level,how many units of labor are hired by the firm?

Accepted Answer

To find the profit-maximizing level of labor, we need to find the level of labor where MPL = wage rate. So, MPL = 8L^-0.5 = 8L(16)(1) - 0.5L(L)(2) = 128 - L^2 Setting MPL = wage rate = $2, we get: 128 - L^2 = 2 L^2 = 126 L = 11.23 (rounded off to the nearest whole number gives L = 11) or L = -11.23 (ignored) However, the actual number of labor units cannot be a decimal, so we try the neighboring integers of L = 11, which are L = 10 (MPL = 108) and L = 12 (MPL = 100). Since MPL decreases as more labor units are hired beyond L = 8, the profit-maximizing level of labor is where MPL = $2, and hence L = 8. Thus, the answer is D) L = 8.

Question 3

If the competitive firm maximizes profit by selecting labor rather than output,it will earn greater economic profit.

Accepted Answer

Whether the firm maximizes profit by selecting output or labor,the resulting profit is the same.Since MC = w/MP,setting MC = p is the same as setting w = p ∗ MP.

Question 4

A firm faces competitive markets for its inputs and its output.At the profit-maximizing level of output,its marginal cost is $10 and the wage paid is $2.If the MPL = L^-0.5,how many workers will be hired by the firm?

Accepted Answer

The firm will hire workers until the marginal product of labor (MPL) times the price of output equals the wage. Given MPL = L^-0.5 and wage = $2, solve for L when MPL * $10 = $2. This gives L = 25.

Question 5

To derive the labor market demand curve,the labor demand curves for each firm in the output market of interest are summed.

Accepted Answer

The labor demand curve for each output market are determined and summed.

Question 6

If workers suddenly decide to value more their leisure time than before,this

Accepted Answer

If workers value their leisure time more, they will have less inclination to work long hours or take up additional employment. This reduces the labor supply in the market, and hence, the supply curve shifts leftwards. As a result, firms will have to increase wages to attract the scarce labor, and they will also hire fewer workers. Thus, the correct choice is A.

Question 7

Why is the short-run demand curve for labor downward sloping?

Accepted Answer

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Question 8

After Hurricane Katrina destroyed much of the infrastructure of the United States Gulf Coast,

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The answer of After Hurricane Katrina destroyed much of the...

Question 9

During the Black Plague,capital became worthless.What can explain this?

Accepted Answer

Capital's marginal product fell because there was a significant reduction in the labor force due to the high mortality rate from the Black Plague. With fewer workers available to utilize the capital (machinery, tools, buildings, etc.), the productivity and value of capital decreased.

Question 10

Suppose there are profit-maximizing,competitive buyers and sellers of labor in an industry,and the amount of capital is fixed for each firm.Explain under what condition the output price will equal the wage rate.

Accepted Answer

The answer of Suppose there are profit-maximizing,competitive buyers and sellers...

Question 11

The labor market demand curve

Accepted Answer

The labor market demand curve is the sum of individual firms' labor demand curves within the industry or market. This is because a change in the market wage rate affects the demand for labor for all firms within the market, and thus the overall labor market demand curve reflects this cumulative effect.

Question 12

If the price of a competitive firm's output increases,the firm responds in the short run by demanding more labor.

Accepted Answer

The firm wishes to sell more output and can do so only by hiring more labor.

Question 13

A firm faces competitive markets for its inputs and its output.Its marginal revenue product of labor

Accepted Answer

If the firm faces competitive markets for both its inputs and outputs, then the wage rate it pays for labor will be determined by the labor market, and its output price will be determined by the product market. Therefore, if the price of the firm's output increases, its marginal revenue product of labor (MRPL) will also increase. This is because the firm can sell more output at a higher price, which creates a greater demand for labor and increases the value of each additional unit of labor. Thus, MRPL is increasing in the output price.

Question 14

A firm uses labor and capital in its production process,and it faces competitive markets for its inputs and output.The firm's long-run labor demand curve

Accepted Answer

In the long run, firms have more flexibility to adjust their capital usage which affects their demand for labor. As a result, the long-run labor demand curve tends to be flatter than the short-run labor demand curve, which is more responsive to changes in input prices. Therefore, the correct choice is D.

Question 15

XYZ Co.operates in a competitive market.Its marginal product of labor is 1/L,and it takes the wage and price as given.Derive the firm's short-run demand for labor as a function of w and p.How much labor will the firm hire if w = 2 and p = 10?

Accepted Answer

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Question 16

How does a competitive firm's demand for labor react to a specific tax on each unit of output it sells?

Accepted Answer

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Question 17

Which of the following labor markets is more likely to be competitive?

Accepted Answer

Receptionist jobs are more common and require a set of skills that many people possess, making this labor market more competitive due to a larger supply of potential workers. In contrast, the markets for singers, soccer players, and sculptors are less competitive due to the unique, specialized talents required and the smaller number of positions available.

Question 18

A firm faces competitive markets for its inputs and its output.At the profit-maximizing level of output,its marginal cost is $10 and the wage paid is $2.If the MPL = L^-0.5,what is the marginal product of the firm?

Accepted Answer

The firm maximizes profit where the marginal cost (MC) equals the marginal revenue product of labor (MRPL), which is the wage rate (W) divided by the marginal product of labor (MPL). Given MC = $10 and W = $2, we have $10 = $2/MPL, solving gives MPL = 0.2.

Question 19

For a competitive firm the marginal revenue product of labor is usually downward sloping.

Accepted Answer

The marginal revenue product equals the marginal product multiplied by the constant price.The marginal product of labor is usually downward sloping due to diminishing marginal returns.

Question 20

In the short run,a competitive firm has a marginal product of labor,MPL = 2L^-0.25.The output price is $4 per unit and the wage is $5 per hour.The short-run labor demand curve for the firm is

Accepted Answer

To find the labor demand curve, we need to maximize the profit of the firm. Total revenue = output price x output quantity Total cost = wage x labor input Profit = Total revenue - Total cost Profit = 4Q - 5L We take the derivative of profit with respect to L to find the MRP (Marginal Revenue Product) of labor, which is the same as MPL (Marginal Product of Labor) in a competitive market: MRP = d(4Q - 5L)/dL = -5 MPL = 2L^-0.25 Setting MRP equal to the wage rate, we can solve for the labor demand curve: MRP = MPL x output price = wage -5 = (2L^-0.25) x 4 -5/8 = L^-0.25 L = 8L^-0.25 Therefore, the answer is D.

Quiz 15: Factor Markets

In the short run,a competitive firm has a marginal product of labor,MPL = 8L-0.5.The output price is $16 per unit and the wage is $2 per hour.At the profit-maximizing level,how many units of labor are hired by the firm?