Log in
Economics
1
answer
1
watching
77
views

1.

a) Assume that a firm is considering whether to hire an additional employee. The firm has a 2-period (year) time horizon with fixed hiring costs in the first period (i.e., period 0). Given the information below, determine the post-hiring wage that the firm pays in period 1 so that it equates the present [discounted] value of marginal labor cost and marginal revenue product. Graph your results.

Hiring (initial) Wage (period 0) = $15,000
Hiring costs = $8,000
MRPl initially (period 0) = $10,000
MRPl post-hiring period = $30,000
"discount rate" = 5%

b) Revise your results from above using a 3-period time horizon for the firm (i.e, t= 0, 1, 2). Assume the post-hiring MRP is constant, as is the post-hiring wage (i.e., MRP1 = MPR2; and W1 = W2). Graph your results. Are your revised results consistent with the implications of the quasi-fixed labor cost model? Explain.

 

Watch
1
answer
1
watching
77
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Avatar image
Read by 1 person

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related textbook solutions

Principles of Economics
2nd Edition, 2017
Openstax
ISBN: 9781947172364
Principles of Macroeconomics
2 Edition,
Openstax
ISBN: 9781947172388
Principles of Microeconomics
2 Edition,
Openstax
ISBN: 9781947172340

Related questions

1. When economists speak of "marginal," they mean
a. Opportunity.
b. Scarcity.
c. Incremental.
d. Unimportant.

2. Managers undertake an investment only if
a. Marginal benefits of the investment are greater than zero.
b. Marginal costs of the investment are greater than marginal benefits of the investment.
c. Marginal benefits are greater than marginal costs.
d. Investment decisions do not depend on marginal analysis.

3. A firm produces 500 units per week. It hires 20 full-time workers (40 hours/week) at an hourly wage of $15. Raw materials are ordered weekly, and they cost $10 for every unit produced. The weekly cost of the rent payment for the factory is $2,250. How do the overall costs break down?
a. Total variable cost is $17,000; total fixed cost is $2,250; total cost is $19,250.
b. Total variable cost is $12,000; total fixed cost is $7,250; total cost is $19,250.
c. Total variable cost is $5,000; total fixed cost is $14,250; total cost is $19,250.
d. Total variable cost is $5,000; total fixed cost is $2,250; total cost is $7,250.

4. Total costs increase from $1,500 to $1,800 when a firm increases output from 40 to 50 units. Which of the following is true if marginal cost is constant?
a. FC = $100
b. FC = $200
c. FC = $300
d. FC = $400

5. A manager of a clothing firm is deciding whether to add another factory in addition to one already in production. The manager would compare
a. The total benefits gained from the two factories to the total costs of running the two factories.
b. The incremental benefit expected from the second factory to the total costs of running the two factories.
c. The incremental benefit expected from the second factory to the cost of the second factory.
d. The total benefits gained from the two factories to the incremental costs of running the two factories.

6. A firm is thinking of hiring an additional worker to their organization who they believe can increase total productivity by 100 units a week. The cost of hiring him or her is $1,500 per week. If the price of each unit is $12,
a. The MR of hiring the worker is $1,500.
b. The MC of hiring the worker is $1,200.
c. The firm should not hire the worker since MB < MC.
d. All the above

7. A retailer has to pay $9 per hour to hire 13 workers. If the retailer only needs to hire 12 workers, a wage rate of $7 per hour is sufficient.
What is the marginal cost of the 13th worker?
a. $117
b. $9
c. $33
d. $84

8. If a firm's average cost is rising, then
a. Marginal cost is less than average cost.
b. Marginal cost is rising.
c. Marginal cost is greater than average cost.
d. The firm is making an economic profit.

9. After the first week of his MBA Managerial Economics class, one of your pharmaceutical sales representatives accuses you of committing the sunk-cost fallacy by refusing to allow him to reduce price to make what he considers to be a really tough sale. Which of the following suggests the sales representative may be right?
a. Most of the costs of drug development are sunk, not fixed.
b. Sales representatives are paid a sales commission on revenue, so they don't care about the costs of drug development.
c. Sales representatives don't worry that a low price today may make it more difficult for the company's other sales representatives to charge higher prices to their customers, tomorrow.
d. Sales representatives think only about one thing, sales.

10. A company is producing 15,000 units. At this output level, marginal revenue is $22, and the marginal cost is $18. The firm sells each unit for $48 and average total cost is $40.
What can we conclude from this information?
a. The company is making a loss.
b. The company needs to cut production.
c. The company needs to increase production.
d. Not enough information is provided.

(1)
 
Which of the following employment situations would most closely approximate a monopsony?
 
  a steel mill in Yokahama, Japan.
  a fast food restaurant in a big city.
  a farmer hiring seasonal workers.
  a large factory in a small town.

 

 

 
(2)
 
If a monopsonist hires labor, it will choose to hire that quantity at which ___________ and pay a wage rate that is _______________.
 
  MR = MC; equal to the MRP curve.
  the supply curve intersect the MRP; less than MFC
  MRP = MFC; less than MRP
  the supply curve intersect the MRP; equal to MRP

 

 

 
(3)
 
Suppose a firm employs both labor and capital. If the ratio of marginal product to price of labor is 50/$10 and the ratio of marginal product of capital to price of capital is 60/$12, the firm should
 
  maintain the current combination capital and labor.
  buy more labor and less capital because labor is cheaper.
  buy more capital and less labor because capital is cheaper.
  buy more capital because it is more productive than labor.

 

 

 
(4)
 
Derived demand for labor means that when a firm hires labor, it has to derive its demand
 
  mathematically.
  based on the labor supply.
  from the demand for the product that the labor produces.
  based on the minimum wage.

 

 

 
(5)
 
For a firm in perfect competition, the value of the marginal product is
 
  the value of an additional unit of output measured in terms of additional cost.
  the total value of the total output output divided by the total output.
  additional revenue minus additional cost as a result of an increase in output.
  the price of the product multiplied by the additional output resulting from an additional unit employed.

 

 

 
(6)
 
A firm that is perfectly competitive will hire labor as long as which of the following is true?
 
  VMP < W.
  VMP > W.
  MC > MR.
  VMP < MRP.

 

 

 
(7)
 
The VMP curve slopes downward at some point because
 
  congestion in the work place lowers marginal product.
  teamwork in the work place increases marginal product.
  the firm hires less labor as the wage rate rises.
  labor supplies less amounts of labor as the wage rate falls.

 

 

 
(8)
 
Which of the following would not be considered capital in a business?
 
  The employees
  The factory
  A machine
  Tools

 

 

 
(9)
 
The increase in the value of a firm’s capital as it increases in age and use is depreciation.
 
  true
  false

 

 

 
(10)
 
On a labor market graph, a firm’s demand for labor is
 
  the wage rate.
  the marginal revenue product curve.
  the marginal product curve.
  indeterminant.

 

 

 
(11)
 
Why may a household’s labor supply curve bend backwards at some wage rate?
 
  The household substitutes labor for leisure.
  The household substitutes leisure for labor.
  Employers demand fewer employees at higher wage rates.
  Households want to supply more labor as the wage rate decreases to maintain incomes.

 

 

 
(12)
 
The substitution effect is usually stronger than the income effect, thus creating an upward sloping labor supply curve.
 
  true
  false

 

 

 
(13)
 
An inelastic demand for labor means that an increase in the wage rate causes a less than proportionate decrease in the quantity of labor demanded.
 
  true
  false

 

 

 
(14)
 
Marginal revenue product is
 
  marginal revenue divided by marginal product.
  marginal revenue times marginal product.
  marginal product minus marginal revenue.
  marginal product plus marginal revenue.

 

 

 
(15)
 
A firm obeys the least-cost rule by equating the ratios of ___________________ to the ________________ price.
 
  marginal product; product
  marginal product; factor
  marginal cost; product
  marginal revenue; product

 

 

 
(16)
 
Suppose the MP of the last unit of capital hired equals 12 and the MP of the last unit of labor hired equals 16.If the price of capital is $8 per unit and the price of labor is $8 per unit, then the firm
 
  is maximizing its costs with this combination of factors.
  is maximizing its profits with this combination of factors.
  should hire more labor and less capital in order to minimize its costs.
  should hire more capital and less labor in order to minimize its costs.

 

 

 
(17)
 
For a firm to minimize its costs with more than one factor of production, for every factor, the ratio of the
 
  marginal product to factor price must be equal.
  marginal revenue product to factor price must be equal.
  marginal revenue product to output must be equal.
  marginal cost to factor price must be equal.

 

 

 
(18)
 
A monopsony is a firm that, in a specific market, is the only
 
  seller of a product.
  buyer of a product.
  seller of a factor of production.
  buyer of a factor of production.

 

 

 
(19)
 
Which of the following businesses would most closely approximate a monopsonist?
 
  A steel mill in Pittsburgh
  A fast food franchise in a large city
  A large manufacturer in a rural county
  A rancher who hires ranch help

 

 

 
(20)
 
A firm has the opportunity to buy a machine that costs $2500. It has found the present value of the income generated by the machine to be $2487. It should purchase the machine.
 
  true
  false

 

 

 
(21)
 
An increase in the market rate of interest causes
 
  a leftward shift in the demand for capital curve.
  a rightward shift in the demand for capital curve.
  a movement up the demand for capital curve.
  a movement down the demand for capital curve.

 

 

 
(22)
 
The characteristic of capital that makes it different from labor is its
 
  high cost.
  durability.
  rotunda.
  relatively low cost compared to labor.

 

 

 
(23)
 
The present value of $1000 one year in the future at a 10 percent interest rate is approximately
 
  $870.
  $909.
  $1000.
  $1909.

 

 

 
     

A change in demand for a given factor of production will not occurif:
Answer
A. the productivity of that factor increases.
B. there is a decrease in the price of a substitute factor.
C. the price of that factor falls.
D. the productivity of that factor decreases.

Question 2

In terms of contribution to total income, the single most importantfactor of production is:
Answer
A. labor.
B. entrepreneurship.
C. natural resources.
D. capital.

Question 3

The trade off between work and leisure underlying the supply oflabor involves the substitution effect and the:
Answer
A. complementary effect.
B. elasticity effect.
C. production effect.
D. income effect.

Question 4

(Exhibit: Marginal Revenue Product and Demand) If the product priceis $4 per unit and the price of the factor of production is $80 perunit, the profit-maximizing quantity of the factor is _______unit(s).
Answer
A. 1
B. 5
C. 7
D. 3

Question 5

In perfect competition:
Answer
A. MFCL is greater than the price of labor.
B. the supply curve of labor to the firm is a horizontalline.
C. MRPL equals the price of the good.
D. MFCL is less than the price of labor.

Question 6

An increase in the participation rate of women in the U.S. laborforce:
Answer
A. has shifted the supply curve of labor to the right.
B. has increased the demand for labor.
C. resulted in a faster increase in wages.
D. has shifted the supply of labor to the left.

Question 7

A firm's demand curve for labor is:
Answer
A. the downward-sloping portion of its marginal revenue productcurve.
B. the upward-sloping portion of its marginal revenue productcurve.
C. horizontal for the firm in perfect competition.
D. the downward-sloping portion of its marginal productcurve.

Question 8

Since the 1970s, wage rates in the United States have _______ more_______ than they did in the previous two decades.
Answer
A. decreased; slowly
B. decreased; rapidly
C. increased; rapidly
D. increased; slowly

Question 9

Which of the following statements is true?
Answer
A. If the MFCL = MRPL the firm should hire more labor.
B. If MFCL < MRPL the firm should hire more labor.
C. If MFCL > 0, the firm should shut down.
D. If the MFCL > MRPL the firm should hire more labor.

Question 10

A leftward shift in the labor supply curve would result if:
Answer
A. people have less nonlabor income.
B. transit costs to and from work decline.
C. the population increases.
D. people value leisure more highly.

Question 11

A firm is in equilibrium when the marginal factor cost is:
Answer
A. equal to the marginal revenue product.
B. less than the price of the factor.
C. equal to the average product.
D. greater than the average product.

Question 12

A leftward shift in the labor supply curve would result if:
Answer
A. transit costs to and from work increase.
B. people value leisure less highly.
C. the population increases.
D. people have less nonlabor income.

Question 13

(Exhibit: Wage Determination in Perfect Competition) Which of thefollowing statements is true?
Answer
A. The firm will hire L1 units of labor, as shown in Panel(a).
B. The individual firm is a wage setter.
C. The firm's MFC of labor is equal to the price of the firm'soutput.
D. Total employment is equal to L1, as shown in Panel (a).

Question 14

(Exhibit: Marginal Revenue Product and Demand) If the product priceis $2 per unit and the price of the factor of production is $20 perunit, the profit-maximizing quantity of the factor is _______units.
Answer
A. 6
B. 4
C. 8
D. 2

Question 15

(Exhibit: Marginal Revenue Product and Demand) Assume that theproduct price is $2 per unit, the price of the factor of productionis $40 per unit, and 8 units are being hired. Profit can bemaximized by hiring _______ unit(s).
Answer
A. 2 more
B. 1 more
C. 3 fewer
D. 1 fewer

Question 16

(Exhibit: Demand and Supply of Bricklayers in a PerfectlyCompetitive Labor Market) If the price for "bricks laid in thewall" by a bricklayer is $.10 a brick, the marginal product of thesecond bricklayer is _______ bricks.
Answer
A. 1,200
B. 1,400
C. 1,300
D. 1,500

Question 17

In a perfectly competitive labor market, each firm can hire:
Answer
A. larger quantities of labor at going market wages perworker.
B. all the labor it wants, but only by outbidding itscompetitors.
C. larger quantities of labor at rising wages per worker.
D. only a fixed amount of labor at the going wage.

Question 18

(Exhibit: Demand and Supply of Bricklayers in a PerfectlyCompetitive Labor Market) If the equilibrium wage in the market forbricklayers is $100 a day, but a minimum wage for bricklayers of$130 a day is set by the government:
Answer
A. 3 workers who otherwise would have been employed are nowunemployed.
B. the firm will shut down.
C. 6 workers will now be hired by the firm.
D. all bricklayers are better off.

Question 19

A factor demand curve will shift because of:
Answer
A. the proportion of the factor's cost relative to totalcost.
B. changes in technology.
C. the slope of the MP curve.
D. the elasticity of demand for the final product.

Question 20

Which of the following statements is true?
Answer
A. MFC = change in total cost/ change in the quantity of afactor.
B. MFC = the change in the quantity of a factor times the change inthe price of the factor.
C. MRPL = MC of the output.
D. MRPL = MPL x (P), where P is the price of labor.

Weekly leaderboard

Home
Homework Help 3,900,000
Economics 400,000
Start filling in the gaps now
Log in