Exam 10: Input Demand: the Labor and Land Markets

Why is it more difficult for a firm to calculate the marginal revenue product of a player in the industry of professional sports versus that of a worker in a competitive manufacturing industry?

Comment on the following statement: "As the market wage rises, the firm is likely to hire less labor."

Niko's Sandwich Shop sells sandwiches in a competitive market. The price of the sandwiches is $0.50 each. Hourly output varies with the amount of labor hired as follows: Fill in the columns for total revenue and marginal revenue product.

A bakery producing bread reports the following production information: The bread sells in a competitive market at a price of $0.30 each. The firm hires workers in a competitive labor market at a wage of $7 per hour. How many workers should the firm hire? Explain your answer.

Explain why input demand curves slope downward using the concepts of the factor substitution effect and the output effect.

A firm producing compact discs reports the following production information: The compact discs sell in a competitive market at a price of $0.20 per box. The firm hires workers in a competitive labor market at a wage of $12 per hour. The firm is currently hiring four workers and is considering hiring a fifth worker. What would you recommend the firm do? Why?

Assume that you start by hiring one worker at a time. Each time you hire an additional worker the average productivity remains the same. What does this imply about the marginal productivity of each worker that you hire? What will the marginal productivity function look like when graphed?

Using Figure 10.1 above is it possible to determine the price that this product is selling for if it is being sold in a competitive market? If so what is that price?

The profit-maximizing rule for a perfectly competitive firm when choosing its level of output is to produce where price is equal to marginal cost. The profit-maximizing rule for a firm hiring labor in a perfectly competitive labor market is to hire workers up to the point where the marginal revenue product equal to the market wage. How are these two rules related to one another?

A firm producing cotton fabric reports the following production information: Does this production function exhibit diminishing returns? Explain.

List four things that can shift the demand for an input.

The manager of a baseball team wants to hire a new pitcher for $4 million per year. Under what circumstances would it make sense for the team to do so?

If barbers in Mexico are just a productive as their counterparts in the United States then why do they earn lower wages?

Script Pro produces robots that are sold to retail pharmacies. Among other things the robots print and apply the prescription and auxiliary labels and delivers uncapped vials for final inspection using on-screen drug image verification. The manager of the pharmacy is trying to calm his workers' fear that their jobs are in jeopardy if he starts using these robots. What economic explanation could the manager use to assuage the fears of his employees that their jobs are in jeopardy.

HK Sweaters, Incorporated employs labor at a wage rate of $12 per hour and rents capital for $30 per hour. At its current level of labor and capital, the marginal product of labor is 24 and the marginal product of capital is 60. Is the firm currently maximizing profit? Explain.

Why might an automobile labor union lobby Congress to place tariffs on labor-saving devices like automated welding and riveting machines? Why might this be a mistake?

What does it mean for two inputs to be complements? Give an example that describes how labor and capital can be complementary inputs.

Assume that a traffic ticket attorney is no more productive today than he was 10 years ago but he is now earning 50% more in salary. How do you explain this apparent paradox?

If a dot com start-up company hires a Web designer at a salary of $100,000 per year, and the company sells no additional Web designs during the year and does not increase the price it charges for its Web designs, what is the marginal revenue product of this Web designer? What type of returns to scale does this example illustrate?

What is the factor substitution effect?