CHAPTER 10
1.1 The key idea here is that many things affect the supply and demand for labor. Productivity could
1.2
Worker
s
Total Pounds
of Macadamia Nuts
Per
Week
MP MRP
0 0 — —
$4,20
0
0
The firm should hire workers as long as MRP > W. When W = $800, the firm should hire three
1.3 (a)
Number of
Workers
Number of Soccer
Balls Produced Per
Day MPLTR
MRP
L
0 0 — $0 —
1 20 20 240 $240
(b) If, as an example, we look at moving from a quantity of 4 workers to a quantity of 5 workers,
(c) The firm should hire workers as long as MRPL > W, subject to the shutdown condition. In
(d) Now the firm should hire only five workers, because the MRP of the sixth worker is only
(e) The new technology will increase both MPL and MRPL by 50 percent at each number of
1.4 Generally, as the productivity of a resource increases, demand for that resource also increases, so
1.5 (a) The oil spill decreased the supply of shellfish, so the price of shellfish increased.
1.6 Both concepts compare marginal revenue and marginal cost and are really identical. When we
1.7 Mardi Gras is such a major event in New Orleans that many businesses have found that
2.1 (a) (b)
(c) Note that this is the same problem as problem 2.2 in Chapter 7 viewed from another
2.2 You would weigh the benefits with the costs. The costs are $40 per week, but the benefits depend
2.3 Clearly, many schools generate revenues by filling large stadiums and arenas with paying fans.
2.4 An organization, whether for profit or not-for-profit, may have to offer compensation which is in
3.1 Answers will vary depending on the location of the school.
3.2 At $3.50, the marginal revenue product of bringing a pond to production was sufficient to cover
3.3 Disney World brings in a number of tourists. These tourists provide new demand for a range of
Supply
Rent ($)
Quanty of land
D0
D1
D2
R0
R1
R2
3.4 The supply of land at a given location is fixed and is therefore perfectly inelastic. Because the
3.5 The lack of zoning laws has held land prices down. The supply of land is fixed, and zoning laws
4.1 (a) Process 1 costs $25 per gizmo, Process 2 costs $24, and Process 3 costs $33. Process 2 is
cheapest.
(b, c) When q = 25, K = 75 and L = 75, TVC = $600.
(d) If capital costs $7 and labor costs $3 per unit, process 1 becomes cheapest, with a cost of $29
4.2 Presumably, there has been a relatively large shift to the right of demand for high-skill labor, and
a relatively small shift to the right (or perhaps a shift to the left) of demand for low-skill labor.
Another class of explanation is that the relative price of high technology goods (which tend to
Since a firm will hire workers up to the point where the wage equals MRP (calculated as MP
´
P),
4.3 (a, b) Demand curve for auto workers shifts right; wages increase; employment increases. See
(c, d) Demand curve for auto workers shifts left; wages decreases; employment decreases. See
4.4 Investment tax credits reduce the cost of capital relative to the cost of labor. To the extent that
5.1 (a)
Total Labor Units Total
P
r
($)Total Capital UnitsTotal Product ($) Total Land Units Total
P
r
($)
(b) The profit-maximizing combination of resources is 5 units of labor, 4 units of capital, and 4
5.2 (a) To maximize profits, the marginal revenue product of labor must be equal to the price of
(b) The firm could increase profits by hiring more workers and not purchasing as much capital.