Ch013EndOfChapterQuestions[1] - The Demand for Resources...

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The Demand for Resources ANSWERS TO END-OF-CHAPTER QUESTIONS 13-2 ( Key Question ) Complete the following labor demand table for a firm that is hiring labor competitively and selling its product in a competitive market. Units of labor Total product Marginal product Product price Total revenue Marginal revenue product 0 1 2 3 4 5 6 0 17 31 43 53 60 65 ____ ____ ____ ____ ____ ____ ____ $2 2 2 2 2 2 2 $____ ____ ____ ____ ____ ____ ____ $____ ____ ____ ____ ____ ____ a. How many workers will the firm hire if the going wage rate is $27.95? $19.95? Explain why the firm will not hire a larger or smaller number of units of labor at each of these wage rates. b. Show in schedule form and graphically the labor demand curve of this firm. c. Now again determine the firm’s demand curve for labor, assuming that it is selling in an imperfectly competitive market and that, although it can sell 17 units at $2.20 per unit, it must lower product price by 5 cents in order to sell the marginal product of each successive labor unit. Compare this demand curve with that derived in question 2b. Which curve is more elastic? Explain. Marginal product data, top to bottom: 17; 14; 12; 10; 7; 5. Total revenue data, top to bottom: $0, $34; $62; $86; $106; $120; $130. Marginal revenue product data, top to bottom: $34; $28; $24; $20; $14; $10. (a) Two workers at $27.95 because the MRP of the first worker is $34 and the MRP of the second worker is $28, both exceeding the $27.95 wage. Four workers at $19.95 because workers 1 through 4 have MRPs exceeding the $19.95 wage. The fifth worker’s MRP is only $14 so he or she will not be hired.
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