17
MARKETS FOR
FACTORS OF
PRODUCTION
A n s w e r s t o t h e P r o b l e m s
1.
a.
The wage rate is $6 an hour. The wage rate adjusts to make the quantity of labor demanded
equal to the quantity supplied.
b.
The number of pickers hired is 400 a day. At a wage rate of $6 an hour, 400 pickers a day
are hired.
c.
The income received by blueberry pickers is $2,400 an hour. Income equals the wage rate
($6 an hour) multiplied by the number of pickers (400).
d.
The wage rate is $5 an hour. The demand curve shifts leftward by 100 pickers at each wage
rate. The wage rate adjusts to make the quantity of labor demanded equal to the quantity
supplied.
e.
The number of pickers hired is 350 a day. At a wage rate of $5 an hour, 50 pickers are laid
off.
f.
The income received is $1,750 an hour. Income equals the wage rate ($5 an hour) multiplied
by the number of pickers (350).
2.
a.
The marginal product of labor is the increase in total product that results from hiring one
additional student. For example, if Wanda increases the number of students hired from 4 to
5, total product (the quantity of fish packed) increases from 120 to 145 pounds. The
marginal product of increasing the number of students from 4 to 5 is 25 pounds of fish.
To plot the marginal product curve, the marginal product is plotted at the midpoint. For
example, when the number of students increases from 4 to 5 a day, marginal product is 25
pounds of fish. The 25 pounds of fish is plotted at 4.5 students a day.
b.
The marginal revenue product of labor is the increase in total revenue that results from hiring
one additional student. For example, if Wanda hires 4 students, they produce 120 pounds of
fish. Wanda sells the fish for 50 cents a pound, so total revenue is $60. If Wanda increases
the number of students hired from 4 to 5, total product increases to 145 pounds. Total
revenue from the sale of this fish is $72.50. Marginal revenue product resulting from hiring
the fifth student is $12.50 ($72.50 minus $60). Alternatively, marginal revenue product
equals marginal product multiplied by marginal revenue (price). Marginal revenue product
of hiring the fifth student is $12.50, which is 25 pounds of fish she sells at 50 cents a pound.
c.
One point on Wanda’s demand for labor curve: At a wage rate of $12.50 an hour, Wanda
will hire 4.5 students. The demand for labor curve is the same as the marginal revenue
product curve.
d.
Wanda hires 6.5 students a day.
Wanda hires the number of students that makes the marginal revenue product equals to the
wage rate of $7.50 an hour. When Wanda increases the number of students from 6 to 7,
marginal product is 15 pounds of fish an hour, which Wanda sells for 50 cents a pound.
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Marginal revenue product is $7.50—the same as the wage rate. Remember the marginal
revenue product is plotted at the midpoint between 6 and 7 students a day—6.5 students a
day.
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 Spring '08
 Kim
 Microeconomics, Supply And Demand, marginal revenue product, Wanda

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