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Review+problems+on+topics+after+second+midterm - REVIEW...

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REVIEW PROBLEM 1 1. Mary runs a small company, Footloose Boots, that manufactures hiking boots. The table below shows the total output of boots per month for different quantities of labor. OUTPUT FIGURES FOR FOOTLOOSE BOOTS Number of Bootmakers Total Number of Pairs of Boots Per Month Marginal Physical Product (boots) Marginal Revenue Product (dollars) 0 0 ________ ________ 1 60 ________ ________ 2 115 ________ ________ 3 165 ________ ________ 4 210 ________ ________ 5 250 ________ ________ 6 285 ________ ________ 7 315 ________ ________ 8 340 ________ ________ 9 360 ________ ________ 10 375 a. Fill in column 3 by using the data in column 2 to compute the marginal physical product of each additional worker. b. Mary can sell boots for $60 a pair. Each boot contains $20 worth of leather, leaving $40 for wages or profits. Because Mary has a small firm, the price is unaffected by the quantity that she sells. Fill in column 4 by computing the marginal revenue product of each worker. Be sure to use the $40 net figure rather than the $60 gross. c. Mary is interested in maximizing profits. How many workers should she employ if monthly wages are $1100? _________________________
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d. Show that your answer to Question c.) maximizes profits by computing total profits for one more and for one less worker. e. The supply of bootmakers for the entire bootmaking industry is described by the equation w = 500 + ½ L, where w is the monthly wage and L is the number of workers. Plot the corresponding supply curve on a graph. Assume that there are 100 competitive firms just like Mary’s. Using your data on the marginal revenue product for a typical firm, plot on the same graph the market demand for bootmakers.
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