Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 16, Problem 2RQ
To determine
The number of workers that can be hired by the firm.
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. Suppose that a car dealership wishes to see if efficiency wages will help improve its salespeople’s productivity. Currently, each salesperson sells an average of one car per day while being paid $20 per hour for an eight-hour day. LO17.8
What is the current labor cost per car sold?
Suppose that when the dealer raises the price of labor to $30 per hour the average number of cars sold by a salesperson increases to two per day. What is now the labor cost per car sold? By how much is it higher or lower than it was before? Has the efficiency of labor expenditures by the firm (cars sold per dollar of wages paid to salespeople) increased or decreased?
Suppose that if the wage is raised a second time to $40 per hour the number of cars sold rises to an average of 2.5 per day. What is now the labor cost per car sold?
If the firm’s goal is to maximize the efficiency of its labor expenditures, which of the three hourly salary rates should it use: $20 per hour, $30 per hour, or $40 per hour?…
Consider a small landscaping company run by Mr. Viemeister. He is considering increasing his firm’s capacity. If he adds one more worker, the firm’s total monthly revenue will increase from $50,000 to $58,000. If he adds one more tractor, monthly revenue will increase from $50,000 to $62,000. Each additional worker costs $4,000 per month, while an additional tractor would also cost $4,000 per month. LO16.5 a. What is the marginal product of labor? The marginal product of capital? b. What is the ratio of the marginal product of labor to the price of labor (MPL/PL)? What is the ratio of the marginal product of capital to the price of capital (MPK/PK)? c. Is the firm using the least-costly combination of inputs? d. Does adding an additional worker or adding an additional tractor yield a larger increase in total revenue for each dollar spent?
4. Suppose that low-skilled workers employed in clearing woodland can each clear one acre per month if each is equippedwith a shovel, a machete, and a chainsaw. Clearing one acrebrings in $1,000 in revenue. Each worker’s equipment coststhe worker’s employer $150 per month to rent and each workertoils 40 hours per week for four weeks each month. LO17.6 a. What is the marginal revenue product of hiring one lowskilled worker to clear woodland for one month?b. How much revenue per hour does each worker bring in?c. If the minimum wage were $6.20, would the revenue perhour in part b exceed the minimum wage? If so, by howmuch per hour?d. Now consider the employer’s total costs. These includethe equipment costs as well as a normal profit of $50 peracre. If the firm pays workers the minimum wage of$6.20 per hour, what will the firm’s economic profit orloss be per acre?e. At what value would the minimum wage have to be set sothat the firm would make zero economic profit fromemploying an…
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- Assume that the productivity of farm labour depends on daily caloric intake, similarly to that depicted in Figure17.4. Using this kind of diagram, compare the efficiency wages that would apply to the following two types of workers: • A landless labourer • A labourer with small plot of land on which he grows staple crops Describe the likely equilibrium unemployment rates and wage rates for landless labourers and small landholders. Judging partially on the basis of this example, what sorts of data and what empirical strategies might you use to see whether nutritional efficiency wages were an important element in the rural labour markets of poor, rural economies?arrow_forwardSuppose a coal mine's workers can dig two tons of coal per hour and coal sells for $15 per ton. If the coal mine is the only hirer of miners in a local area and faces a labor supply curve of the form: l = 50w. What is the equilibrium level of employment? What is the wage paid to minors?arrow_forwardSuppose the demand curve for union labor is given by the equation: L = 450 − 3W.Suppose the current wage is $20. Now suppose the union is successful in raising the wage of its members to $28. At the same time, it is able to shift the demand for labor out to: L = 510 − 3W. a. What was the original employment level? What is the new employment level? b. Has the higher wage negotiated by the union reduced the employment opportunities of its members? If so, by how much? c. Who has benefitted and who has lost as a result of this negotiation. Be specific and complete.arrow_forward
- Suppose the demand curve for union labor is given by the equation: L = 450 − 3W.Suppose the current wage is $20. Now suppose the union is successful in raising the wage of its members to $28. At the same time, it is able to shift the demand for labor out to: L = 510 − 3W. Has the higher wage negotiated by the union reduced the employment opportunities of its members? If so, by how much? c. Who has benefitted and who has lost as a result of this negotiation. Be specific and complete.arrow_forwardSuppose that low-skilled workers employed in clearing woodland can each clear one acre per month if each is equipped with a shovel, a machete, and a chainsaw. Clearing one acre brings in $1,000 in revenue. Each worker’s equipment costs the worker’s employer $150 per month to rent and each worker toils 40 hours per week for four weeks each month. LO17.6 Now consider the employer’s total costs. These include the equipment costs as well as a normal profit of $50 per acre. If the firm pays workers the minimum wage of $6.20 per hour, what will the firm’s economic profit or loss be per acre? At what value would the minimum wage have to be set so that the firm would make zero economic profit from employing an additional low-skilled worker to clear woodland?arrow_forwardMa2. Required: Question 3.(LO3 Apply) Simon Ltd is run by Simon Leather who makes leather belts for designers. He uses the finest Argentinean leather and needs highly trained machinists to make the belts up to the quality designers expect. His beits usually sell for £50 per item and use 0.2m² of leather and 30 minutes of labor. Simon Ltd has 5 staff. They work a standard 8-hour day, 5 days a week, 48 weeks of the year. They earn £15 per hour. Leather costs £20 per meter. Simon also has some variable overheads of £6 per unit. Fixed overheads are £28,800. a) Calculate the number of belts Simon will have to sell to break even. Simon decides to branch out and start to also sell handbags to the same market. The handbags sell for €250 each and use 1.5m² of leather with 1 hour of labor being required. Variable overheads are £20 per handbag. There has been a bad case of foot and mouth in Argentina. Simon can only use the leather he has currently being shipped to him for the next…arrow_forward
- Assume that the labor demand equation for a fictional country is L d =30-w where w is the wage per hour worked and L d is the number of workers demanded by firms. Assume also that the labor supply equation for that country is L s =0.5(w) , where L s is the number of people willing to work . [LO 9.2,9.5] a. Find the equilibrium wage and quantity of labor employed b . At the equilibrium wage , how many people are unemployed ? c. How would the number of unemployed change if the supply of workers increased ?arrow_forward14.ASsume the labor force is made up of 40% women and 60% men. If 40% of all manufacturing jobsare held by women and 90% of the highest-paying management and executive level jobs inManufatacturing are held by men, then, with respect to the manufacturing sector, it can be said that: multiple choiceO.a. there is no horizontal occupational segregation but there is vertical occupational segregation. O.b. there is both horizontal and vertical occupational segregation.O.c. there is no sex-based discrimination in entry-level By solving it for 'r' through hit and trial method, the required interest rate can be found.positions but there is sex-based discriminationin management level positions.O.d. there is no sex-based discrimination in management positions but there is sex-baseddiscrimination in executive level positions.arrow_forwardA firm produces output (y) using two inputs, labor (L) and capital (K), according to the following Cobb-Douglas production function: y = f(L, K) = Lº25 K0.75. Assuming that we draw the isoquant map with labor on the horizontal axis and capital on the vertical axis, what is the slope of this firm's isoquant when L = 120 and K = 60? Give your answer to two decimal places and remember that the sign matters when describing the slope of an isoquant.[_____________] Part 2 : See Hint Assume that L = 120 and K = 60 and suppose that the firm decides to reduce its use of capital and replace those machine hours with some additional labor hours. Approximately how many labor hours will the firm need to add for each machine hour it cut in order to maintain the same level of output (i.e., stay on the same isoquant)? Give your answer to two decimal places. [__________] labor hoursarrow_forward
- 32. Assuming labor is the only cost for production, a firm hires labor up to the point at which the wage equals (i) the value of the marginal product of labor, (ii) the marginal cost of an additional unit of output, (iii) output price multiplied by the marginal product of labor, for maximum profit. O (i) and (iii) only O (i) and (ii) only (ii) and (iii) only O (i), (ii), and (iii)arrow_forwardComplete the following table that shows the labor demand for a firm that is hiring labor competitively and selling its product in a purely competitive market. a. How many workers will the firm hire if the market wage rate is $27.95? $19.95? Explain why the firm will not hire a larger or smaller number of units of labor at each of these wage rates. b. Show in schedule form and graphically the labor demand curve of this firm. Units of Labor Total Product Marginal Product Product Price Total Revenue Marginal Reveune Product 0 0 __________ $2 $__________ $__________ 1 17 __________ $2 $__________ $__________ 2 31 __________ $2 $__________ $__________ 3 43 __________ $2 $__________ $__________ 4 53 __________ $2 $__________ $__________ 5 60 __________ $2 $__________ $__________ 6 65 __________ $2 $__________ $__________ My previous question was incomplete!arrow_forwardPROBLEMS 1. Workers are compensated by firms with “benefits” in addition to wages and salaries. The most prominent benefit offered by many firms is health insurance. Suppose that in 2000, workers at one steel plant were paid $20 per hour and in addition received health benefits at the rate of $4 per hour. Also suppose that by 2010 workers at that plant were paid $21 per hour but received $9 in health insurance benefits. LO17.1 By what percentage did total compensation (wages plus benefits) change at this plant from 2000 to 2010? What was the approximate average annual percentage change in total compensation? By what percentage did wages change at this plant from 2000 to 2010? What was the approximate average annual percentage change in wages? If workers value a dollar of health benefits as much as they value a dollar of wages, by what total percentage will they feel that their incomes have risen over this time period? What if they only consider wages when calculating their incomes?…arrow_forward
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