Question 1

If a payroll tax of $X per hour is collected from employers,then the
A) labor demand curve shifts down by $\frac { 1 } { 2 }$ $X at any given employment level.
B) labor demand curve shifts down by amount $X at any given employment level.
C) labor supply curve shifts left by $X at any given employment level.
D) labor supply curve shifts down by $X at any given employment level.

Accepted Answer

The labor demand curve shifts down by the amount of the payroll tax ($X) at any given employment level because the cost of hiring an employee increases by $X per hour, making employers willing to pay less for labor (excluding the tax).

Question 2

Other things being equal,how does the labor demand curve of a firm that is not perfectly competitive in the product market (that is,the firm has some ability to set product price)differ from the labor demand curve of a firm that sells in a perfectly competitive product market? Suppose that the equilibrium wage rate increases from $15 per hour to $18 per hour.Discuss the response likely to be observed at each type of firm.Comment specifically on and explain the responses in employment likely to be observed.

Accepted Answer

The answer of Other things being equal,how does the labor...

Question 3

Is the firm's labor demand curve more wage sensitive in the short run or in the long run? Explain and use the concepts of substitution effect and scale effect in answering the question.

Accepted Answer

The answer of Is the firm's labor demand curve more...

Question 4

State and discuss the two kinds of objections raised to the marginal productivity theory of labor demand.

Accepted Answer

The answer of State and discuss the two kinds of...

Question 5

Suppose that the XYZ Company hires labor and capital in competitive input markets.Assume that labor costs W = $200 per day and that a unit of capital costs C = $150 per day.At the current level of production,labor's marginal product is MPL = 40 units of output produced per day and capital's marginal product is MPK = 30 units of output per day.Given the information provided,is the firm minimizing the cost of current production? Explain why or why not.If the wage were to increase to $W ^ { \prime }$ = $240 per day,discuss and explain the long run adjustments that the firm would make in response to the wage increase.

Accepted Answer

The answer of Suppose that the XYZ Company hires labor...

Question 6

Suppose that a firm rents labor services in a competitive labor market where the equilibrium wage rate is $15 per hour.Sketch the labor supply curve that the firm faces (label the axes of your graph and relevant numeric reference points appropriately).Explain why the graph looks as you have drawn it.

Accepted Answer

The answer of Suppose that a firm rents labor services...

Question 7

In constructing a model of firm-level labor demand,we assume that labor is subject to diminishing marginal productivity.Explain the rationale for this assumption.

Accepted Answer

The answer of In constructing a model of firm-level labor...

Question 8

Consider an employer that is a monopolist in its product market versus an otherwise comparable employer that is a competitor in its product market.A wage increase will have
A) a comparatively larger effect on employment of the monopolist because the monopolist is the only seller of the good.
B) no effect on employment of the monopolist because the monopolist will simply pass the increase in wage cost on to consumers by charging a higher price.
C) the same effect on employment because the profit maximization condition is MRP = MEL whether the firm is a monopolist or whether it is competitive in the product market.
D) a comparatively smaller effect on employment of the monopolist because the monopolist will be able to pass some of the increase in wage cost on to consumers by charging a higher price.

Accepted Answer

As a monopolist, the employer has market power to charge a higher price for its product. Therefore, the employer can pass some of the increase in wage cost on to consumers by charging a higher price, which reduces the impact of wage increase on its profit margin. This, in turn, implies that the effect of wage increase on employment will be comparatively smaller for the monopolist than for the competitor in its product market.

Question 9

The output of workers at a factory depends on the number of supervisors employed.The factory sells its good in a competitive product market at a price of P = $5.The daily wage of supervisors is W = $600.Fill in the MPL and MRPL columns in the table below.
 $$\begin{array} { | c | c | c | c | } 
\hline \text { Supervisors } & \begin{array} { c } 
\text { Output (units } \
\text { per day) }
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Product } \
\left( M _ { \mathrm { L } } \right)
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Revenue Product } \
\left( \mathrm { MRP } _ { \mathrm { L } } \right)
\end{array} \
\hline 0 & 100 & & \
\hline 1 & 500 & & \
\hline 2 & 860 & & \
\hline 3 & 1160 & & \
\hline 4 & 1400 & & \
\hline 5 & 1560 & & \
\hline 6 & 1640 & & \
\hline 7 & 1680 & & \
\hline 8 & 1680 & & \
\hline
\end{array}$$ 
How many supervisors should the firm employ? Explain why.

Accepted Answer

The answer of The output of workers at a factory...

Question 10

Suppose that a firm is competitive in both the product market and the labor market.Graph the firm's marginal revenue product curve (be sure to label the axes of your graph appropriately).Explain why the marginal revenue product curve is also the firm's short run labor demand curve.

Accepted Answer

The answer of Suppose that a firm is competitive in...

Question 11

Suppose that a firm is competitive in both the product market and the labor market.If the market determined wage rate decreases,the firm's demand for labor increases.Explain why using the marginal productivity theory of input demand.

Accepted Answer

The answer of Suppose that a firm is competitive in...

Question 12

Suppose that the marginal revenue product function for the firm is MRPL = 40 - .75L.Assume that the firm hires labor in a competitive labor market at a wage of W = $10 per hour.Explain why employment of L = 20 is not profit maximizing (show exactly how profit could be increased).What is the profit maximizing level of employment for this firm?

Accepted Answer

The answer of Suppose that the marginal revenue product function...

Question 13

When unemployment is widespread and the wage is above its market clearing level,a cut in employer payroll tax will
A) be largely ineffective.
B) benefit employers and have no effect on workers.
C) increase employment, reduce unemployment, and have little to no effect on wages.
D) drive up wages but have little to no effect on employment and unemployment.

Accepted Answer

When unemployment is widespread and the wage is above its market clearing level, it means that the labor supply is greater than the labor demand, leading to a surplus of labor in the market. In this scenario, a cut in employer payroll tax would decrease the cost of labor for firms, enabling them to increase the number of workers they hire. This would, in turn, increase employment and reduce unemployment. However, since there is a surplus of labor, the increase in employment would not lead to an increase in wages, and hence, the effect on wages would be minimal. Thus, choice C is the correct answer.

Quiz 3: The Demand for Labor

If a payroll tax of $X per hour is collected from employers,then the

Is the firm's labor demand curve more wage sensitive in the short run or in the long run? Explain and use the concepts of substitution effect and scale effect in answering the question.

State and discuss the two kinds of objections raised to the marginal productivity theory of labor demand.

In constructing a model of firm-level labor demand,we assume that labor is subject to diminishing marginal productivity.Explain the rationale for this assumption.

Consider an employer that is a monopolist in its product market versus an otherwise comparable employer that is a competitor in its product market.A wage increase will have

Suppose that a firm is competitive in both the product market and the labor market.Graph the firm's marginal revenue product curve (be sure to label the axes of your graph appropriately).Explain why the marginal revenue product curve is also the firm's short run labor demand curve.

Suppose that a firm is competitive in both the product market and the labor market.If the market determined wage rate decreases,the firm's demand for labor increases.Explain why using the marginal productivity theory of input demand.

When unemployment is widespread and the wage is above its market clearing level,a cut in employer payroll tax will