Post on 05-Jan-2016
description
Demand Table: Led ZepPrice Quantity Demanded
1000 6750 9700 10600 12500 16400 17300 21250 24200 36150 46100 74
75 8250 12225 15610 207
0 229
I think per average income per capita in the U.S. is in the range
1)Less than $20,000 9) $55,000-$60,000
2) $20,000-25,000 10) more than $60,000
3) $25,000-30,000
4) $30,000-35,000
5) $35,000-40,000
6)$ 40,000-45,000
7) $45,000-50,000
8) $50,000-$55,000
I think per average income per capita in the U.S. is in the range
1)Less than $20,000 9) $55,000-$60,000
2) $20,000-25,000 10) more than $60,000
3) $25,000-30,000
4) $30,000-35,000
5) $35,000-40,000
6)$ 40,000-45,000
7) $45,000-50,000
8) $50,000-$55,000
Correct answer
U.S. Per capita income in 2006 was about $43,000.
If the average value product of labor is greater than the wage, a firm can increase
its profits by hiring more labor.
A) True
B) False
• With 4 workers, Avg Val Product is $90.
• That exceeds the wage.
• Will profits increase from hiring a fourth worker?
• No. See table.
workers v.output AVP Profits
1 $200 $200 $175
2 $300 $150 $250
3 $350 $116.66 $275
4 $360 $90 $260
Example: Wage is $25
A profit maximizing firm will choose the amount of labor that maximizes the
marginal value product of labor.
A) True
B) False
• To maximize Marginal Value Product hire 1
• To maximize profits, hire 3.
• What does Marginal value product rule say?
• Hire additional labor so long as marginal value product exceeds the wage.
workers v.output MVP Profits
1 $200 $200 $175
2 $300 $100 $250
3 $350 $50 $275
4 $360 $10 $260
Example: Wage is $25
If this firm maximizes profitsby hiring 3 workers, the wage
must be between:
Number workers.
Value of output.
1 $200
2 $240
3 $300
4 $340
5 $350
A) $40 and $60
B) $85 and $120
C) $60 and $100
D) $60 and $80
E) $100 and $113.33
Why is this?
• According to the marginal profit rule,
Firm should add workers so long as marginal value product of labor exceeds wage.
Marginal value product of third laborer is $60, marginal value product of 4th is $40. If wage is between $40 and $60, it pays to add third laborer, but not a 4th.
And on to our lecture…