Question

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Homework Assignment #8 1. (6 points) Deciding how many workers to hire: Assume that the initial price of shoes in this example is $30 per pair. What is the marginal revenue product for each worker? Fill in the following chart and graph each function.. Number of 0 1 2 3 4 5 6 7 workers Total 019293743 46 48 48 Output Or shoes Marginal Output of shoes Marginal Revenue Product If it costs the firm $90 per worker per day, how many workers would be hired? Why? b. If the price of shoes went up to $45 per pair how many workers would be hired? c. If labor costs went up to $180/day and the price of shoes was $30 each, how many workers would be hired? 2. (2 points) Explain the labor-leisure tradeoff. Why would the labor supply be backward bending at a very high wage rate? 3. (2 points) If the price of the product being produced goes up, how does that impact labor demand? Illustrate the impact on a labor market graph where you have wage rate on the vertical axis and quantity of workers on the horizontal axis.

Answer 1

(Question 1)

MPL = Change in Q / Change in L

MRPL = MPL x Output price

(a)

L	Q	MPL	MRPL = 30 x MPL
0	0
1	19	19	570
2	29	10	300
3	37	8	240
4	43	6	180
5	46	3	90
6	48	2	60
7	48	0	0

Hiring is optimal when MRPL = Wage rate = $90, which holds true when L = 5.

(b)

L	Q	MPL	MRPL = 45 x MPL
0	0
1	19	19	855
2	29	10	450
3	37	8	360
4	43	6	270
5	46	3	135
6	48	2	90
7	48	0	0

Hiring is optimal when MRPL = Wage rate = $90, which holds true when L = 6.

(c)

Hiring is optimal when MRPL = Wage rate = $180, which holds true when L = 4 (Using table in Part a).

NOTE: As HOMEWORKLIB Answering Policy, 1st question is answered.