LABOR ECON-CONNECT ACCESS
8th Edition
ISBN: 9781264604197
Author: BORJAS
Publisher: MCG
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Chapter 3, Problem 4RQ
To determine
Explain the condition of profit maximizing by the firm.
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Suppose the firm is hiring labor and capital and that the ratio of marginal products of the two inputs equals the ratio of input prices. Does this imply that the firm is maximizing profits? Why or why not?
A manager hires labor and rents capital equipment in a very competitive market. Currently the wage rate is $12 per hour and capital is rented at $8 per hour. If the marginal product of labor is 60 units of output per hour and the marginal product of capital is 45 units of output per hour, is the firm using the cost-minimizing combination of labor and capital? If not, should the firm increase or decrease the amount of capital used in its production process?
Suppose that a production function of a firm is given by q = f(1) = 2√ī. It depends only on labor,
whose price per unit is w. The firm is a price taker and the price for the good it produces is p. What
is the quantity produced by the firm if the firm maximizes profits and what is the value of profit at
that quantity?
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LABOR ECON-CONNECT ACCESS
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- Suppose a firm is producing 2,475 units of output by hiring 50 workers (W = $20 per hour) and 25 units of capital (R = $10 per hour). The marginal product of labor and marginal product of capital are 30 and 15, respectively. Is the firm minimizing the cost of producing 2,475 units of output? Explain.arrow_forwardA manager hires labour and rents capital equipment in a very competitive market. Currently the wage rate is $12 per hour and capital is rented at $8 per hour, whereas the marginal product of labour is 60 units of output per hour and the marginal product of capital is 45 units of output per hour. Show if the firm is using the cost-minimizing combination of labour and capital and give appropriate advice if necessary.arrow_forwardThe production function of a competitive firm is described by the equation y = 2x11/2 6x21/2. The factor prices are p1 = $3 and p2 = $4 and the firm can hire as much of either factor it wants at these prices. What is the firm’s marginal cost?arrow_forward
- True or false and explain Suppose a firm’s marginal product of labour is MPL = 10/L, where L is measured in labour hours, the price of the product is $600, and the cost per hour of labour is $30. The firm currently employs 150 labour hours. In order to maximize the firm’s profits in the short run, the manager should increase its labour employment by 40 labour hours.arrow_forwardDescribe the difference between a diminishing marginal product of labor and a negative marginalproduct of labor. Why would a profit-maximizing firm always choose to operate where the marginalproduct of labor is decreasing (but not negative)?arrow_forwardConsider the table below that describes the production function for a good (Q) in terms of inputs labor (L) and capital (K) in the short run. What is the marginal product of labor for the fourth worker? Enter the number below.arrow_forward
- A firm produces output according to the production function . If it sells its output in a perfectly competitive market at a price of 10, and if K is fixed at 4 units, what is this firm’s short run demand function for labor? (Remember profit maximizing labor demand).arrow_forwardQuestion 18 Consider a firm that has production function f(L,K)=4L2/3K1/3. What is the expression for this firm’s Marginal Product of labor? MPL(L,K)= 2K2/3/3L2/3. MPL(L,K)= 2K2/3/L1/3. MPL(L,K)= 2K1/3/3L1/3. MPL(L,K)= 5K2/3/3L2/3. MPL(L,K)= 8K1/3/3L1/3.arrow_forwardAssume a firm is trying to maximize output subject to a budget and is currently in the long run equilibrium shown below. Make changes to the graph to show the impact of a decrease in the wage. Make sure that the graph shows the new output-maximizing combination as well as the new levels labor and capital.arrow_forward
- A firm minimizes its costs by using inputs such that the marginal product of labor is 10 and the marginal product of capital is 20. The price of capital is $10 per unit. What must the price of labor be? (hint: the marginal product per dollar should be equal for both inputs)arrow_forwardSuppose in the long-rung the production function of a competitive firm is Q=f(L,K)= L1/5 K 1/2 , where L is the amount of labor and K is the amount of capital. The cost per unit of labor is w and the cost of capital is r, which is the interest rate. The price per unit of output is p. Derive unconditional factor demand functions.arrow_forwardMicroeconomics II is the most fun course you ever took. Explain? A profit-maximizing competitive firm uses just one input, x. Its production function is q= 4(x)^1/2. The price of out-put is $28 and the factor price is $7. The amount of the factor that the firm demands is?arrow_forward
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