7_Solutions

# 7_Solutions - will not hire her Which one of the following...

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College of Human Ecology Cornell University, Ithaca, New York Department of Policy Analysis and Management PAM 200 Intermediate Micro A. Sinan ¨ Un¨ur – Fall 2007 Quiz 7 – Answers October 18, 2007 Q1 ) Alice is works in the booming widget industry in Zambonia. The table below describes Alice’s marginal product of labor as a function of hours worked: L (hours) MP L ( Δ Q / Δ L ) Q (Total Output) 0 - - 1 10 10 2 15 25 3 20 45 4 15 60 5 10 70 6 5 75 7 3 78 8 1 79 9 0 79 10 -5 74 11 -10 64 12 -20 44 ( i ) Fill in the total output column in the table above. ( ii ) How many hours must Alice work every day to produce the maximum possible num- ber of widgets? Eight hours. An extra hour does not result in any additional output. ( iii ) How many widgets will Alice be able to produce if she works the number of hours you found above? 79 widgets.

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( iv ) Bob is the CEO of the only widget ﬁrm in Zambonia and he cares only about making as much money as possible from selling widgets. Suppose Alice wants to work for free for the only widget ﬁrm in Zambonia but Bob
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Unformatted text preview: will not hire her. Which one of the following could explain Bob’s decision? ( a ) Bob discriminates against women. ( b ) The price of widgets is zero. ( c ) Consumers love widgets. Answer : 1(iv)b . If Alice works for free, the cost of making another widget to Bob is zero for output levels up to 79 units. Since Bob only cares about making money, he would allow Alice to work some amount if the price of a widget is greater than the cost incurred to produce it. Because Bob does not want any widgets produced at a cost of zero, we can conclude that he could not have made any money by selling them: That is, the price of widgets must be zero. If consumers loved widgets, Bob would have been able to get at least someone to pay for widgets and would have employed Alice. 2...
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7_Solutions - will not hire her Which one of the following...

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