Microeconomics (9th Edition) (Pearson Series in Economics)
9th Edition
ISBN: 9780134184241
Author: Robert Pindyck, Daniel Rubinfeld
Publisher: PEARSON
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Question
Chapter 14, Problem 10E
(a)
To determine
Profit maximizing quantity of L.
(b)
To determine
Profit maximizing quantity of q.
(c)
To determine
Maximum profit.
(d)
To determine
Profit maximizing quantity of L, q, profit after tax in output, and subsidy of wages.
(e)
To determine
Profit maximizing quantity of L, q, profit after tax in output, and subsidy of wages.
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Consider the labour market for farms during the harvest season. Assume the market is perfectly competitive, with a labour demand function QD = 10-P and a labour supply function QS = 3P, where P is the wage.
a) What are the consumer (farm owners) surplus and producer (farm workers) surplus in equilibrium?
b) What is the price elasticity of demand at the equilibrium?
c) Suppose the government subsides the farm owners (consumers) $1 for every unit of labour purchased. Then, compute the quantity of labour traded in the market, the wage received by the workers and the wage paid by the farm owners.
d) Calculate the consumer surplus and producer surplus in the presence of the subsidy in part c).
Suppose a campus restaurant increases the number of workers it hires from 3 workers per day to 11 workers per day. As a result, its total revenue increases from $135 per day to $550 per day.
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$
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Consider the market for labor where both firms and workers are price takers. Output is produced using capital and labor.The marginal product of labor can be described by: 200 – 4L, where L is the number of workers hired. The price of the good produced is 5 per unit.
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b. Suppose that the competitive firm must pay 100 for each worker. Determine the number of workers hired. (Determine the total income to capital. Show your work for both parts.
c. Suppose that the price of the good rises but that the wage remains the same. Illustrate how the optimal choice of labor would change. No need to do the explicit calculation; just show the outcome and briefly explain.
Chapter 14 Solutions
Microeconomics (9th Edition) (Pearson Series in Economics)
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Similar questions
- A firm uses a production function of the form Y=z*K^0.33*Nd^0.67 and chooses labor input Nd to maximize profits taking the wage rate w that it pays per unit of labor as given. First, write down the profit function of the firm. Assume z=10, K=100, and wage w = $20. The government now introduces a wage subsidy to help out the firm. The wage subsidy s = $4 per unit of work. Given this subsidy solve for the new optimal output level of the firm. Y* =arrow_forwardA firm hires labor in a perfectly competitive labor market. Its current profit-maximizing hourly output is 100 units, which the firm sells at a price of $5 per unit. The Marginal Physical product (MPP) of the last unit of labor employed is 5 units per hour. The firm pays each worker an hourly wage of $15. a)What Marginal Revenue (MR) does the firm earn from sale of the output produced by the last worker employed? b)Does this firm sell its output in a perfectly competitive market?arrow_forwardWhy does a profit-maximizing firm hire workers up to the point where the wage equals the value of marginal product? Show that this condition is identical to the one that requires a profit-maximizing firm to produce the level of output where the price of the output equals the marginal cost of production.arrow_forward
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