quanda18 - Chapter 18 1. Suppose that labour is the only...

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Practice Questions to accompany Mankiw & Taylor: Economics 1 Chapter 18 1. Suppose that labour is the only variable input in the production process for a competitive profit-maximizing firm that produces coffee mugs. The firm's production function is shown below. a. Fill out columns three and four of the table above (the marginal product of labour and the value of the marginal product of labour when the price of output equals €3 per mug). Answer:
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Practice Questions to accompany Mankiw & Taylor: Economics 2 b. Suppose that the competitive wage for workers who can make coffee mugs is €19 per hour. How many workers should this firm hire? Why? Answer: Three workers because the value of the marginal product of each of the first three workers exceeds the €19 wage so each worker adds to profits but the fourth worker only has a value of marginal product of €18 so hiring the fourth worker would reduce profits. c. Suppose that colleges that teach pottery skills increase the supply of workers that can make coffee mugs and that this lowers the competitive wage for coffee mug workers to €13 per hour. How many workers should this firm hire? Why? Does this represent a shift in the firm's demand for labour or a movement along the firm's demand for labour? Explain. Answer: Five workers because the value of the marginal product of each of the first five workers now exceeds the €13 wage but the sixth worker only has a value of marginal product of €12 so hiring the sixth worker would reduce profits. This is a movement along the firm’s demand
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This note was uploaded on 07/06/2009 for the course BUS BAM303 taught by Professor Na during the Spring '09 term at 東京大学.

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quanda18 - Chapter 18 1. Suppose that labour is the only...

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