# ch13 - Chapter 13 Labor Markets Poverty and Income...

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Chapter 13: Labor Markets, Poverty, and Income Distribution Wednesday, July 21

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ANOTHER PIZZA RESTAURANT Again, I own a pizza restaurant. Each slice sells for \$2. .. N: The number of workers I hire Q: The number of pizza slices that I sell N Q 1 21 2 38 3 51 4 60 5 65 6 67 7 67
MP AND VMP OF LABOR Again, I own a pizza restaurant. Each slice sells for \$2. .. N: The number of workers I hire Q: The number of pizza slices that I sell R: My revenue N Q MP R VMP 1 21 21 42 42 2 38 17 76 34 3 51 13 102 26 4 60 9 120 18 5 65 5 130 10 6 67 2 134 4 7 67 0 134 0 MP: The marginal product of labor, ΔQ/ΔN VMP: The value of the marginal product of labor, P × (ΔQ/ΔN) or ΔR/ΔN

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QUESTION 1 (my demand for labor) Again, I own a pizza restaurant. Each slice sells for \$2. .. N: number of workers Q: quantity R: revenue MP: marginal product of labor, ΔQ/ΔN VMP: value of MP, P × (ΔQ/ΔN) or ΔR/ΔN N Q MP R VMP 1 21 21 42 42 2 38 17 76 34 3 51 13 102 26 4 60 9 120 18 5 65 5 130 10 6 67 2 134 4 7 67 0 134 0 If the wage is \$30 (so I must pay \$30 to hire each worker), how many workers should I employ, to maximize my profit? A) 1 B) 2 C) 3 D) 4 E) 5
answer to question 1 Again, I own a pizza restaurant. Each slice sells for \$2. .. N: number of workers Q: quantity R: revenue MP: marginal product of labor, ΔQ/ΔN VMP: value of MP, P × (ΔQ/ΔN) or ΔR/ΔN N Q MP R VMP 1 21 21 42 42 2 38 17 76 34 3 51 13 102 26 4 60 9 120 18 5 65 5 130 10 6 67 2 134 4 7 67 0 134 0 If the wage is \$30 (so I must pay \$30 to hire each worker), how many workers should I employ, to maximize my profit? A) 1 B) 2 C) 3 D) 4 E) 5

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QUESTION 2 (my demand for labor) Again, I own a pizza restaurant. Each slice sells for \$2. .. N: number of workers Q: quantity R: revenue MP: marginal product of labor, ΔQ/ΔN VMP: value of MP, P × (ΔQ/ΔN) or ΔR/ΔN N Q MP R VMP 1 21 21 42 42 2 38 17 76 34 3 51 13 102 26 4 60 9 120 18 5 65 5 130 10 6 67 2 134 4 7 67 0 134 0 If the wage is \$5 (so I must pay \$5 to hire each worker), how many workers should I employ, to maximize my profit? A) 1 B) 2 C) 3 D) 4 E) 5
answer to question 2 Again, I own a pizza restaurant. Each slice sells for \$2. .. N: number of workers Q: quantity R: revenue MP: marginal product of labor, ΔQ/ΔN VMP: value of MP, P × (ΔQ/ΔN) or ΔR/ΔN N Q MP R VMP 1 21 21 42 42 2 38 17 76 34 3 51 13 102 26 4 60 9 120 18 5 65 5 130 10 6 67 2 134 4 7 67 0 134 0 If the wage is \$5 (so I must pay \$5 to hire each worker), how many workers should I employ, to maximize my profit? A) 1 B) 2 C) 3 D) 4 E) 5

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DEMAND FOR LABOR SCHEDULE Suppose that there are 20 pizza restaurants in town just like mine. Let DL i be the quantity that each restaurant would choose given each wage, and let DL be the total demand for labor in the pizza worker market. N VMP 1 \$42 2 \$34 3 \$26 4 \$18 5 \$10 6 \$4 7 \$0 W DL i DL >\$42 0 0 \$34 \$42 1 20 \$26 \$34 2 40 \$18 \$26 3 60 \$10 \$18 4 80 \$4 \$10 5 100 \$0 \$4 6 120
If workers‟ value of marginal product decreases as more are hired, then at higher wages, firms will choose to hire fewer workers.

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ch13 - Chapter 13 Labor Markets Poverty and Income...

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