Question

1. The demand for labor

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Consider Live Happley Fields, a small player in the strawberry business whose production has no individual effect on wages and prices. Live Happley’s production schedule for strawberries is given in the following table:

Labor Input	Total Output
(Number of workers)	(Pounds of strawberries)
0	0
1	18
2	34
3	48
4	60
5	70

Suppose that the market wage for strawberry pickers is $170 per worker per day, and the price of strawberries is $12 per pound.

On the following graph, use the blue points (circle symbol) to plot Live Happley’s labor demand curve when the output price is $12 per pound.

Note: Remember to plot each point between the two integers. For example, when the number of workers increases from 0 to 1, the marginal revenue product of the first worker should be plotted with a horizontal coordinate of 0.5, the value halfway between 0 and 1. Line segments will automatically connect the points.

Created with Raphaël 2.1.2Demand P = $12Demand P = $160123453002702402101801501209060300WAGE RATE (Dollars per worker)QUANTITY OF LABOR (Number of workers)

Created with Raphaël 2.1.2

Points:

Close Explanation

Explanation:

At the given wage and price level, Live Happley should hire selector 1

• one worker
• two workers
• three workers
• four workers
• five workers

.

Points:

Close Explanation

Explanation:

Suppose that the price of strawberries increases to $16 per pound, but the wage rate remains at $170.

On the previous graph, use the purple points (diamond symbol) to plot Live Happley’s labor demand curve when the output price is $16 per pound.

Close Explanation

Explanation:

Now Live Happley should hire selector 1

• one worker
• two workers
• three workers
• four workers
• five workers

when the output price is $16 per pound.

Points:

Close Explanation

Explanation:

Assuming that all strawberry-producing firms have similar production schedules, an increase in the price of strawberries will cause the selector 1

• supply of
• demand for

strawberry pickers to selector 2

• decrease
• increase

.

Points:

Close Explanation

Explanation:

Suppose that wages increase to $200 due to an increased demand for workers in this market. Assuming that the price of strawberries remains at $16 per pound, Live Happley will now hire selector 1

• one worker
• two workers
• three workers
• four workers
• five workers

.

Answer 1