Chapter 18 Questions for Review answers

Chapter 18 Questions for Review answers - technological...

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Chapter 18 Questions for Review 1. A firm's production function describes the relationship between the quantity of labor  used in production and the quantity of output from production. The marginal product  of labor is the increase in the amount of output from an additional unit of labor. Thus,  the marginal product of labor depends directly on the production function. The value  of the marginal product of labor is the marginal product of labor multiplied by the  market price of the output. A competitive, profit-maximizing firm hires workers up to the point where the value of  the marginal product of labor equals the wage. As a result, the value-of-marginal- product curve is the firm’s labor-demand curve. 2. Events that could shift the demand for labor include changes in the output price, 
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Unformatted text preview: technological change, and changes in the supply of other factors. 3. Events that could shift the supply of labor include changes in tastes, changes in alternative opportunities, and immigration. 4. The wage can adjust to balance the supply and demand for labor while simultaneously equaling the value of the marginal product of labor. Supply and demand for labor determine the equilibrium wage. Firms maximize profits by choosing the amount of labor where the wage is equal to the value of the marginal product of labor. 5. A large immigration would increase the supply of labor, thus reducing the wage. With more labor working with capital and land, the marginal product of capital and land is higher, so rents earned by owners of land and capital would increase....
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