Ex5Fri

Ex5Fri - Do you have a job during the school year? 69% ho...

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Unformatted text preview: Do you have a job during the school year? 69% ho or 20 Ye s, et w ee n m or e 10 10 s, b Ye an d ho u .. .. o. N th an s le s s, 10% ur ... 14% 6% Ye 1. No. 2. Yes, less than 10 hours per week. 3. Yes, between 10 and 20 hours per week. 4. Yes, 20 or more hours per week. If the average value product of labor is greater than the wage, a firm can increase its profits by hiring more labor. 71% 1. True 2. False ls e ru e 29% Example: Wage is $25 workers 1 2 3 4 • • • • v.output $200 $300 $350 $360 AVP $200 $150 $116.66 $90 Profits $175 $250 $275 $260 With 4 workers, Avg Val Product is $90. That exceeds the wage. Will profits increase from hiring a fourth worker? No. See table. A profit maximizing firm will choose the amount of labor that maximizes the marginal value product of labor. 83% 1. True 2. False 17% Example: Wage is $25 workers 1 2 3 4 • • • • v.output $200 $300 $350 $360 MVP $200 $100 $50 $10 Profits $175 $250 $275 $260 To maximize Marginal Value Product hire 1 To maximize profits, hire 3. What does Marginal value product rule say? Hire additional labor so long as marginal value product exceeds the wage. Example: Wage is $25. workers 1 2 3 4 v.output $200 $300 $350 $360 MVP $200 $100 $50 $10 Profits $175 $250 $275 $260 • To maximize marginal value product hire 1. • To maximize profits, hire 3. • What does Marginal value product rule say? 1. 2. 3. 4. 5. $40 and $60 $85 and $120 $60 and $100 $60 and $80 $100 and $113.33 69% 1 $200 $240 3 must be between: Value of output. 2 If this firm maximizes profits by hiring 3 workers, the wage Number workers. $300 4 $340 5 $350 12% 15% 3% 1% Why is this? • According to the marginal profit rule, Firm should add workers so long as marginal value product of labor exceeds wage. Marginal value product of third laborer is $60, marginal value product of 4th is $40. If wage is between $40 and $60, it pays to add third laborer, but not a 4th. And on to our lecture… ...
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This note was uploaded on 12/25/2011 for the course ECON 1 taught by Professor Bergstrom during the Fall '07 term at UCSB.

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Ex5Fri - Do you have a job during the school year? 69% ho...

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