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16-359
0
.40
3
39
125
1.8
0
225
.00
61.60
4
32
157
1.7
0
266
.90
41.90
5
24
181
1.6
0
289
.60
22.70
6
14
195
1.5
0
292
.50
2.90
7
2
197
1.4
0
275
.80
−16.7
0
Resource
price
Quantity
employed
$90
0
80
1
70
2
60
3
50
3
40
4
30
4
20
5
10
5
1
6
15. Complete the following table, where L is the units of labor, TPL is the total product of labor, MPL is the
marginal product of labor, P is product price, TR is total revenue, and MRPL is the marginal revenue
product of labor.
L
TPL
MPL
P
TR
MRPL
0
0
$2.00
$_____
1
10
_____
2.00
_____
$_____
2
19
_____
2.00
_____
_____
3
27
_____
2.00
_____
_____
4
34
_____
2.00
_____
_____
5
40
_____
2.00
_____
_____
6
45
_____
2.00
_____
_____
7
49
_____
2.00
_____
_____
8
52
_____
2.00
_____
_____
9
54
_____
2.00
_____
_____
10
55
_____
2.00
_____
_____
(a) In what type of market is the firm selling its product? How do you know?
(b) Why does the MRP schedule decrease as labor increases?
(c) Complete the following table.
Wage
rate
Quantity of
workers employed
$16
_____
14
_____
12
_____
10
_____
8
_____
6
_____
16-360
L
TPL
MPL
P
TR
MRPL
0
0
$2.00
–
1
10
10
2.00
$ 20
$20
2
19
9
2.00
38
18
3
27
8
2.00
54
16
4
34
7
2.00
68
14
5
40
6
2.00
80
12
6
45
5
2.00
90
10
7
49
4
2.00
98
8
8
52
3
2.00
104
6
9
54
2
2.00
108
4
10
55
1
2.00
110
2
16-361
(c) See table.
Wage
rate
Quantity of
workers employed
$16
3
14
4
12
5
10
6
8
7
6
8
16-362
16. Complete the following table, where L is the units of labor, TPL is the total product of labor, MPL is the
marginal product of labor, P is product price, TR is total revenue, and MRPL is the marginal revenue
product of labor.
L
TPL
MPL
P
TR
MRPL
0
0
$2.00
$_____
1
10
_____
1.90
_____
$_____
2
19
_____
1.80
_____
_____
3
27
_____
1.70
_____
_____
4
34
_____
1.60
_____
_____
5
40
_____
1.50
_____
_____
6
45
_____
1.40
_____
_____
7
49
_____
1.30
_____
_____
8
52
_____
1.20
_____
_____
9
54
_____
1.10
_____
_____
10
55
_____
1.00
_____
_____
(a) In what type of market is the firm selling its product? How do you know?
(b) Why does the MRP schedule decrease as labor increases?
(c) Complete the following table.
Wage
rate
Quantity of
workers employed
$16
_____
14
_____
12
_____
10
_____
8
_____
6
_____
L
TPL
MPL
P
TR
MRPL
0
0
$2.00
$ 0
1
10
10
1.90
19.00
$19.00
2
19
9
1.80
34.20
15.20
3
27
8
1.70
45.90
11.70
4
34
7
1.60
54.40
8.50
5
40
6
1.50
60.00
5.60
6
45
5
1.40
63.00
3.00
7
49
4
1.30
63.70
0.70
8
52
3
1.20
62.40
−1.30
9
54
2
1.10
59.40
−3.00
10
55
1
1.00
55.00
−4.00
(a) An imperfectly competitive market because price declines as more units are produced.
(b) Because the marginal product of labor decreases and because the price of the product decreases.
(c) See table.
Wage
rate
Quantity of
workers employed
$16
1
14
2
12
2
10
3
8
4
6
4
17. Complete the following table, where L is the units of labor, TPL is the total product of labor, MPL is the
marginal product of labor, P is product price, TR is total revenue, and MRPL is the marginal revenue
product of labor.
L
TPL
MPL
P
TR
MRPL
0
0
$5.00
$_____
1
30
_____
5.00
_____
$_____
2
57
_____
5.00
_____
_____
3
81
_____
5.00
_____
_____
4
102
_____
5.00
_____
_____
5
120
_____
5.00
_____
_____
6
135
_____
5.00
_____
_____
7
147
_____
5.00
_____
_____
8
156
_____
5.00
_____
_____
9
162
_____
5.00
_____
_____
10
165
_____
5.00
_____
_____
(a) In what type of market is the firm selling its product? How do you know?
(b) Why does the MRP schedule decrease as labor increases?
(c) Complete the following table.
Wage
rate 8-hr
shift
Quantity of
workers
employed
$135
_____
120
_____
105
_____
90
_____
75
_____
60
_____
L
TPL
MPL
P
TR
MRPL
0
0
$5.00
$ 0
1
30
30
5.00
150
$150
2
57
27
5.00
285
135
3
81
24
5.00
405
120
4
102
21
5.00
510
105
5
120
18
5.00
600
90
6
135
15
5.00
675
75
7
147
12
5.00
735
60
8
156
9
5.00
780
45
9
162
6
5.00
810
30
10
165
3
5.00
825
15
(a) The firm is selling in a purely competitive market because product price is constant at $5.00.
(b) MRP decreases as labor increases because of the law of diminishing returns. The marginal product of
labor will fall, which causes MRP to fall as more and more workers are hired.
(c) See table.
Wage rate
8-hr shift
Quantity of
workers employed
$135
2
120
3
105
4
16-364
90
5
75
6
60
7
18. Use the information in the table to answer the questions below.
(1)
Units of
Resource
(2)
Total Product
(Output)
(3)
Marginal
Product (MP)
(4)
Product
Price
(5)
Total
Revenue
(6)
Marginal
Revenue Product
(MRP)
0
0
---
4
--
1
5
4
2
9
4
3
12
4
4
14
4
5
15
4
(a) Complete the information in the columns (3), (5), and (6).
(b) Graph the derived demand curve on the graph provided below. Be sure to label the axis.
(c) Suppose the equilibrium wage is $12. What is the quantity of workers that will be employed?
(a) See table below.
(1)
Units of
Resource
(2)
Total Product
(Output)
(3)
Marginal
Product (MP)
(4)
Product
Price
(5)
Total
Revenue
(6)
Marginal
Revenue Product
(MRP)
0
0
---
4
0
--
1
5
5
4
20
20
2
9
4
4
36
16
3
12
3
4
48
12
4
14
2
4
56
8
5
15
1
4
60
4
(b) See graph below.
16-365
16-366
19. Use the information in the table to answer the questions below.
(1)
Units of
Resource
(2)
Total
Product
(Output)
(3)
Marginal
Product
(MP)
(4)
Product
Price
(5)
Total
Revenue
(6)
Marginal
Revenue
Product (MRP)
0
0
---
5.60
--
1
16
5.20
2
27
4.80
3
36
4.20
4
44
3.90
5
51
3.70
(a) Complete the information in the columns (3), (5), and (6).
(b) Graph the derived demand curve on the graph provided below. Be sure to label the axis.
(c) Suppose the equilibrium wage is $21. What is the quantity of workers that will be employed?
(a) See table below.
(1)
Units of
Resource
(2)
Total
Product
(Output)
(3)
Marginal
Product
(MP)
(4)
Product
Price
(5)
Total
Revenue
(6)
Marginal
Revenue
Product (MRP)
0
0
---
5.60
0
--
1
16
16
5.20
83.20
83.20
2
27
11
4.80
129.60
46.40
3
36
9
4.20
151.20
21.60
4
44
8
3.90
171.60
20.40
5
51
7
3.70
188.70
17.10
(b) See graph below.
(c) At a wage of $21 three workers will be demanded.
16-367
20. (Consider This) How is marginal revenue product reflected in “winner-take-all” markets such as in the music
industry?
21. What is the difference between a change in resource demand and a change in the quantity of a resource
demanded? What factors contribute to a change in resource demand or a change in the quantity of a resource
demanded?
22. How will a change in productivity change the demand for a resource? What three factors will affect
productivity?
23. Compare the factors that will cause shifts in the downsloping resource demand and product demand curves.
24. Assume that labor and capital are substitutes in production. If there is an increase in the price of capital,
how can this lead to either an increase or decrease in the demand for labor?
25. Why is the effect of a change in price of a substitute good potentially ambiguous?
16-368
26. Does it matter whether capital and labor are substitutes or complements when figuring out what will
happen to the demand for labor if the price of capital increases? Explain.
27. Compare and explain the significance of the substitution and output effects as they apply to resource
pricing. What relationship, if any, do they bear to the income and substitution effects discussed in
connection with product demand?
28. Indicate how the following events will shift the firm’s demand curve for labor: increase it (I); decrease it
(D); keep it the same (S).
___ Technological advances increase labor’s productivity.
___ The wage rate increases.
___ The demand for the product that labor produces decreases.
___ The wage rate decreases.
___ Absenteeism reduces labor’s productivity.
___ The price of labor-saving machinery is reduced and the substitution effect is greater than the output
effect.
29. What are examples of the fastest growing occupations in percentage terms expected to be from 2014–2024?
What economic principle of resource pricing best explains these trends?
30. What are three examples of occupations that are expected to experience a rapid decline in employment
from 2014-2024? Why are these occupations likely to experience this decline?
31. What will be the elasticity of resource demand in the following cases?
32. Compare the factors that explain the elasticity of resource and product demand.
33. What effect, if any, will each of the following have upon the elasticity or the location of the demand curve
for resource J that is being used in the production of commodity X? If there is uncertainty as to the precise
effect, explain the sources of that uncertainty.
(a) A decline in the demand for product X.
(b) An increase in the price of Y, a substitute product for X.
(c) A decline in the price of substitute resource K.
(d) A decline in the number of available resources that are substitutable for J in the production of X.
(e) An increase in the price of complementary resource L.
(f) An increase in the elasticity of demand for product X due to an increase in the number of sellers in the
market.
34. Explain briefly and concisely the meaning and significance of the following equation:
35. A firm combines two resources, X and Y, to produce an output level Q in a purely competitive market. The
cost of a unit of X is $15 and the cost of a unit of Y is $8. The marginal product of X is 30 units and the
marginal product of Y is currently 24 units at output level Q. What would you recommend that the firm do
given this resource combination?
1
capital of Price
capital of MRP
labor of Price
labor of MRP ==
16-371
36. A firm combines two resources, X and Y, to produce an output level Q in a purely competitive market. The
cost of a unit of X is $20 and the cost of a unit of Y is $4. The marginal product of X is 100 units and the
marginal product of Y is currently 16 units at output level Q. What would you recommend that the firm do
given this resource combination?
37. A perfectly competitive firm in the factor and product markets sells its output for $1 and pays factors PL =
$9 and Pc = $12. What is the profit-maximizing combination of labor (L) and capital (C) for the firm?
QL
MPL
QC
MPC
1
28
1
18
2
24
2
15
3
20
3
12
4
16
4
9
5
9
5
6
6
4
6
3
7
2
7
2
The firm would employ 5 units of labor and 3 units of capital to maximize profit.
38. In the table below are the marginal-product and marginal-revenue-product schedules for resource A and
resource B. Both resources are variable and are employed in purely competitive markets. The price of A is
$1 and the price of B is $2.
Quantity of
resource A
employed
Marginal
product
of A
Marginal
revenue
product of A
Quantity of
resource B
employed
Marginal
product
of B
Marginal
revenue
product of B
1
20
$5.00
1
20
$5.00
2
16
4.00
2
18
4.50
3
12
3.00
3
16
4.00
4
10
2.50
4
12
3.00
5
8
2.00
5
8
2.00
6
4
1.00
6
6
1.50
7
2
.50
7
4
1.00
(a) What is the least-cost combination of resources A and B that would enable the firm to product 120
units of output?
(b) What is the profit-maximizing combination of A and B?
(c) What is total output and profit when the firm is employing the profit-maximizing combinations of A
and B?
1
$12
$12
$9
$9
1
P
MRP
P
MRP ====
c
c
L
L
16-372
39. In the table below are the marginal-product and marginal-revenue-product schedules for resource A and
resource B. Both resources are variable and are employed in purely competitive markets. The price of A is
$2 and the price of B is $4.
Quantity of
resource A
employed
Marginal
product
of A
Marginal
revenue
product of A
Quantity of
resource B
employed
Marginal
product
of B
Marginal
revenue
product of B
1
40
$10.00
1
40
$10.00
2
32
8.00
2
36
9.00
3
24
6.00
3
32
8.00
4
20
5.00
4
24
6.00
5
16
4.00
5
16
4.00
6
8
2.00
6
12
3.00
7
4
1.00
7
8
2.00
(a) What is the least-cost combination of resources A and B that would enable the firm to produce 240
units of output?
(b) What is the profit-maximizing combination of A and B?
(c) What is the total output and profit when the firm is employing the profit-maximizing combination of A
and B?
40. The table below summarizes the marginal product and marginal revenue product information for labor and
capital. Assume the other quantities used by the firm remain constant. The price for labor is $6 and the
price for capital is $4. Use the table to answer the following questions.
QL
MPL
MRPL
QK
MPK
MRPK
1
50
$36
1
40
$30
2
45
30
2
38
29
3
30
24
3
32
25
4
20
18
4
30
20
5
10
12
5
20
18
6
5
6
6
15
15
7
0
0
7
10
10
(a) What would be the least-cost combination of labor and capital that would enable the firm to produce
285 units?
(b) What is the profit-maximizing combination of A and B?
(c) Suppose the price of capital decreases to $3. Now, what is the least-cost combination of labor and
capital? How many units of output would it allow the firm to produce?
(d) Given the price change, now what is the profit-maximizing combination of labor and capital? How has
output changed?
41. A firm combines two resources, A and B, to produce an output level Q in a purely competitive market. The
cost of a unit of A is $5 and the cost of a unit of B is $12. The marginal revenue product of A is $5 and the
marginal revenue product of B is currently $12. What would you recommend that the firm do given this
resource combination?
42. What are two criticisms of the marginal productivity theory of income distribution?
The marginal productivity theory of income distribution suggests that people should be paid according to
43. “Under competition, workers are paid what they are worth.” Explain and evaluate this statement. Does it
follow that the resulting distribution of wage incomes is desirable?
44. (Last Word) What has the long-term effect of ATMs on the demand for bank teller labor?
45. (Last Word) “Capital is, overall, a complement for human labor, not a substitute.” Evaluate this statement
in terms of the effect technological innovations in capital will have on the labor market.
