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 5RQ
To determine
Marginal analysis.
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Suppose 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?
A software company in Silicon Valley uses programmers (labor) and computers (capital) to produce apps for mobile devices. The firm estimates that when it comes to labor, MPL = 5 apps per month while PL = $1,000 per month. And when it comes to capital, MPC = 8 apps per month while PC = $1,000 per month. If the company wants to maximize its profits, it should: LO16.5 a. Increase labor while decreasing capital. b. Decrease labor while increasing capital. c. Keep the current amounts of capital and labor just as they are. d. None of the above.
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?
Chapter 16 Solutions
Economics (Irwin Economics)
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