Question

In: Economics

Parting from the profit maximizing rule, why is W = VMP = demand for labor? Would...

Parting from the profit maximizing rule, why is W = VMP = demand for labor?

Would a union agreement preventing firms from substituting capital for labor make labor-demand elasticity more or less elastic? Why?

Solutions

Expert Solution

Question 1

VMP or Value of Marginal Product is calculated by multiplying the marginal product by price of the product.

VMP indicates the increase in total revenue of the firm when it hires one more worker.

Wage rate implies the income paid to workers. So, wage rate paid to one more worker hired implies an increase in total of the firm as one more worker is hired.

A firm maximizes profit when it hires that quantity of labor corresponding to which increase in total revenue as one more worker is hired equals the increase in total cost as one more worker is hired.

Increase in total revenue as one more worker is hired indicates VMP while increase in total cost as one more worker is hired indicates wage rate.

So,

The profit-maximizing quantity of labor hired is that quantity corresponding to which VMP equals wage rate.

Quantity of labor hired implies demand for labor.

Therefore,

W = VMP = Demand for Labor

Rahul Sunny answered 2 years ago
Next > < Previous

Related Solutions

How would the use of an economic pricing strategy (profit-maximizing rule or price discrimination) improve the...
How would the use of an economic pricing strategy (profit-maximizing rule or price discrimination) improve the operational profitability of most organizations in the current economic environment? How would the practice benefit the business or organization for which you are working? Explain. no less than 250 words in length, make at least one reference to your text or other course materials and provide in-text citations. As you reference information from a source, be sure to provide APA citations in text and...
Labor demand: Ld = 210 – 2W Labor supply: Ls = 120 + W W =...
Labor demand: Ld = 210 – 2W Labor supply: Ls = 120 + W W = the wage rate. If the government sets the minimum wage rate at $40 per hour, Ld or employment will decline by ___ (compare with equilibrium employment). Select one: A. 5 B. 10 C. 15 D. 20 E. 25
15. The demand for labor is determined by a. Firms maximizing profits. b. Workers maximizing utility....
15. The demand for labor is determined by a. Firms maximizing profits. b. Workers maximizing utility. c. The government working in concert with workers through programs such as job retraining and unemployment insurance that reduce the conflict between workers and firms. d. All of the above.
Inverse Labor Supply is w=5L. The Inverse Labor Demand curve is w=100-20L Suppose there is a...
Inverse Labor Supply is w=5L. The Inverse Labor Demand curve is w=100-20L Suppose there is a negative production externality that costs society $50 per unit of labor hired. 1. what is the social marginal benefit curve now, and why is it not the same as labor demand curve? 2. what is the socially optimal level of employment 3. what is the dead-weight loss associated w/ CME? 4. what is the dead-weight loss associated w/ the monopsony? 5. is the monopsony...
Labor Supply in an industry is given by ES = 10 + w and labor demand...
Labor Supply in an industry is given by ES = 10 + w and labor demand is given by ED = 40 − 4w, where E is the level of employment and w is hourly wage rate. 1) Draw the supply and demand curves and find the competitive equilibrium wage and employment level. 2) What is the unemployment rate at this equilibrium? 3) Calculate the producer and worker surplus 4) Suppose that the government imposes a minimum wage of $8...
What would be the profit-maximizing price for the firm to charge?
What would be the profit-maximizing price for the firm to charge?
A firm offers a pick and drop facility for its workers. Why would a profit-maximizing firm...
A firm offers a pick and drop facility for its workers. Why would a profit-maximizing firm opt for such a policy?
A firm offers a pick and drop facility for its workers. Why would a profit-maximizing firm...
A firm offers a pick and drop facility for its workers. Why would a profit-maximizing firm opt for such a policy? Explain in words. Would the workers respond to this announcement? Show in a standard diagram with wage on the x-axis and effort on the y-axis. With the aid of the diagram you have drawn. Show what would happen to the equilibrium wage and effort? A firm offers a pick and drop facility for its workers.
Why is it that a profit-maximizing businessman would always raise prices when facing an inelastic demand curve, but might or might not raise prices when facing an elastic demand curve?
Why is it that a profit-maximizing businessman would always raise prices when facing an inelastic demand curve, but might or might not raise prices when facing an elastic demand curve? Explain and justify your answers in detail by covering the inelastic and elastic demand curves. Make sure you define the meaning of the elastic and inelastic demands.
uestion 322 pts The profit-maximizing rule MR = MC is: Group of answer choices followed by...
uestion 322 pts The profit-maximizing rule MR = MC is: Group of answer choices followed by a perfectly competitive firm but not by a monopoly followed by a monopoly but not by a perfectly competitive firm followed by all types of firms not followed by a monopoly because it would reduce economic profit to zero Flag this Question Question 332 pts The shape of the marginal cost curve (MC) is driven by: Group of answer choices Diminishing returns Diminishing returns,...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT