Question

4. Say a firm that sells its product at a price of $20 is using 20 units of labor. If the marginal product of the last unit of labor hired was 10, and the firm pays each worker a wage of $40, then this firm should

hire more workers.

decrease the number of workers.

keep the same number of workers.

decrease its output.

5. Economic theory supports the view that increasing the minimum wage will

increase the employment of teenagers.

decrease the employment of teenagers.

decrease the employment of unionized labor.

increase the number of monopsony firms.

6. Say a worker sees work and leisure as perfect complements with a ratio of 5 to 1 (requiring 1 hour of leisure for every $5 in income). If this worker earned a wage of $10 her optimal demand for leisure would be:

16.

20.

24.

10.

7. The substitution effect of an increase in the wage rate on the quantity of leisure demanded

makes leisure more expensive which leads people to work more.

makes leisure less expensive which causes people to work less.

gives people more purchasing power and causes people to demand more leisure.

gives people less purchasing power and so they will demand less leisure.

Answer 1

4) A. VMPL=Price*MPL=20(10)=200 and wage=40. Since VMPL>wage rate which means firms should hire more labor

5)C. When price floor/minimum price increases, then labor demand decreases and employment of unionised labor decreases

6)ans is A.    For perfect complement, utility from 1 hour of leisure=$5 consumption

Thus leisure=C/5

also budget 10L+C=24*10=240

15Leisure=240

leisure=240/15=16

7)A. When price/wage rate increases the relative cost of leisure increases which decreases leisure and labor supplied  increases where people to choose to work more