ECN101_PS2_ans_w08

ECN101_PS2_ans_w08 - This problem set is due on Jan 29...

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This problem set is due on Jan 29 (Tuesday). ECN101 Instructor: Masako Miyanishi Problem Set 2 1. Consider MPL. The table below shows total output at each value of L. a. Determine MPL at each value of L. L Y MPL 0 0 n.a 1 10 10 2 19 9 3 27 8 4 34 7 5 40 6 6 45 5 7 49 4 8 52 3 9 54 2 10 55 1 b. Graph the production function (Y) (L is on the horizontal axis.) c. Graph MPL schedule. MPL is on the vertical axis and L is on the horizontal axis.
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Now suppose W/P=7 d. If L=3, should the firm hire more or less labor? Why? It should hire more labor. For L=3, MPL is above W/P. e. If L=8, should the firm hire more or less labor? Why? It should hire less labor. For L=8. MPL is below W/P. 2. Use the neoclassical theory of distribution to predict the impact on the real wage and the real rental price of capital of each of the following events: a. A wave of immigration increases the labor force. L increases. Due to diminishing MPL, MPL decreases. Real wage falls. As L increases, capital goods become more productive (five computers to five workers will be more productive than five computers to two workers). Real rental price of capital rises. b. A foreign aid increases the amount of capital in an economy. As K increases, MPK declines due to diminishing MPK.
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ECN101_PS2_ans_w08 - This problem set is due on Jan 29...

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