Consider a firm that exists for one period. The value of labour’s (L) marginal product is...

Consider a firm that exists for one period. The value of labour’s (L) marginal product is given by VMPL= P X MPL where P is the price of output, and MPL=10- 0.5L. The wage rate is $10.

a. Assuming that there are no hiring or training costs. If the firm expects the price of the output to be $10, what is the optimal level of employment L0? If the firm hires these workers, but then finds out that the price of output is $5, what will the firm do?

b. Assume now that there are hiring and training costs of $20 per worker. If the firm expects the price of output to be $10, what is the optimal level of employment? How does this compare to your answer in part (a)? If the firm hires these workers, but then finds out that the price of output is $5, what will the frim do? What if the price is $2? Explain.

c. Explain (qualitatively) how your answer to part (b) would change if the hiring and training costs were higher or lower. How can these results be used to predict the patterns of layoffs across occupations and industries during economic downtowns?

Solutions

Expert Solution

Rahul Sunny answered 7 months ago

Next > < Previous

Related Solutions

The value of the marginal product of labor for Panera is VMPL=20-(1/2)L. Panera hires L workers...

The value of the marginal product of labor for Panera is VMPL=20-(1/2)L. Panera hires L workers in a competitive labor market and only sells coffee, also in a competitive market. The price of coffee is $2. First, sketch Panera's demand for labor. Clearly label each axis. What market wage would induce Panera to hire only 4 workers? Suppose someone provided Panera with an infinite supply of free labor. Panera would not use an infinite number of workers; instead it would...

1. If the marginal product is _, the value of marginal product must be _. Select...

1. If the marginal product is _____, the value of marginal product must be _____. Select one: a. rising; zero b. falling; falling c. rising; falling d. falling; rising 2. The amount by which an additional unit of a factor increases a firm's total _____ during a period is the _____. Select one: a. cost; value of marginal product b. revenue; marginal factor cost c. cost; marginal product d. revenue; value of the marginal product 3. The demand for factors...

Consider the short-run. As a firm hires more labor, total output ___ and the marginal product...

Consider the short-run. As a firm hires more labor, total output ___ and the marginal product of labor ___. rises; falls falls;rises falls;falls rises;rises Consider the short-run. As the firm hires more labor, average output per laborer ___. remains unchanged falls rises Consider ACME, a monopoly (not a natural monopoly) in the production of rocket skates. The rocket skates industry hired 5,041 workers last year. All else equal, if antitrust authorities were to break up this monopoly (creating a perfectly...

Consider the consumer’s optimization problem in the one-period model. Utility is: u ( c , l...

Consider the consumer’s optimization problem in the one-period model. Utility is: u ( c , l ) = ln ⁡ ( c ) + γ ln ⁡ ( l ) where c is consumption of goods, l is leisure, and γ is a constant. The consumer’s nominal budget constraint is: P c = W ( h − l ) where P is the price of goods; W is the nominal wage; and h is the total hours in the period....

A firm will purchase additional workers as long as worker's Select one: a. marginal revenue product...

A firm will purchase additional workers as long as worker's Select one: a. marginal revenue product is greater than zero b. marginal revenue product is greater than or equal to its marginal resource cost c. marginal revenue product equals the product price d. marginal revenue product is less than its marginal resource cost e. total revenue product is greater than its marginal resource cost A firm will purchase additional workers as long as worker's Select one: a. marginal revenue product...

Assume a monopolist firm with diminishing marginal product. Graph the marginal cost curve. Graph the firm...

Assume a monopolist firm with diminishing marginal product. Graph the marginal cost curve. Graph the firm level demand curve. Graph the firm level marginal revenue curve. Identify the profit maximizing quantity to produce and the corresponding price. What does the price function look like if the monopolist can engage in perfect price discrimination?

Consider a static (one-period), closed economy with one representative consumer, one representative firm, and a government....

Consider a static (one-period), closed economy with one representative consumer, one representative firm, and a government. The level of capital K and government expenditures G in the economy are both fixed exogenously. The government levies a lump sum tax T in order to fund its purchases, and the government budget must balance. Suppose the price of consumption is normalized to one (p = 1). The representative consumer has 24 hours of time available (h = 24), which she can use...

what is the difference between value of marginal product and marginal revenue product? under what conditions...

what is the difference between value of marginal product and marginal revenue product? under what conditions are they the same? under what market conditions are these who not the same in value?

Consider a one period economy in which the representative consumer has preferences over leisure (l) and...

Consider a one period economy in which the representative consumer has preferences over leisure (l) and consumption (c) described by the utility function u(c, l) = c0.5l0.5 This consumer has 1 unit of time h to spend between leisure, l, and labor supply, Ns. The representative firm’s production function is Y = zNd where Nd is labor demand and z = 2 is total factor productivity. The government buys one unit of consumption good, meaning that, G = 1. (a)...

Suppose that the marginal product of labor is: MP = 100 – L, where L is the number of workers hired.

Suppose that the marginal product of labor is: MP = 100 – L, where L is the number of workers hired. You can sell the product in the marketplace for $50 per unit and the wage rate for labor is $100. How many workers should you hire?

Subjects