WA _4-1-MICRO - La Rosa1 Melissa La Rosa Dr. Edmondson...

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La Rosa1 Melissa La Rosa Dr. Edmondson Macroeconomics 2/7/12 Written Assignment #4 1. Labor is the only input used by a perfectly competitive firm. It hires workers for $50 a day. The firm's production function is as shown in the following Table. (The table will open in a new window.) Each unit of output sells for $10. a. Complete the table to show the marginal product of labor and the value of the marginal product of labor. Days of Labor Units of Daily Outputs Marginal Product Of Labor Value of the Marginal Product Of Labor 0 0 0 0 1 7 7 70 2 13 6 60 3 19 6 60 4 25 6 60 5 28 3 30 6 29 1 10 b. How many days of labor should the firm hire? Explain. 5 days. 5 days of labor would cost 250 but would generate 280 leaving a profit of 30. 6 days would thusly bring in -10 so it would obviously not be profitable.
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La Rosa2 2. Describe the factors of production. What are the returns to these factors (their price)? Describe the marginal products of each factor and how the value of the marginal product of each factor is determined. The factors of production include labor, land and capital since these things are inputs needed to produce goods or services. Labor would relate to employees and time, land is actual physical space/property needed and capital is investments in equipment, tools, and other resources necessary. One major return is the Marginal Revenue Product. That is how much extra revenue stands to be generated from additional investments in factors of production. Specifically labor’s returns can be measured in the marginal product of labor. “The profit from an additional worker is the worker’s contribution minus the worker’s wage.” (Mankiw,395). Land may see a return when it’s paid off and/or when equity is actually building. Or if a company needs to relocate and the land is worth more than purchased. Or it may see a return in rental income if an investor has enough savvy and foresight. Capital sees a return in improving efficiency, saving time, and being durable and practical so that one can “get their money’s worth out of it” .As long as the firm or venture remain competitive and concentrate on maximizing profit then each of the factors of production earn the value of their marginal contribution to the production process. (Mankiw, 407). 3. Describe the process by which the market for capital and the market for labor reach equilibrium. What happens to each if demand for the final product were to increase? Why? The demand curve for labor slopes downward because the marginal product of labor decreases with more workers. When a company is deciding how many people to hire it looks at the extra revenue that worker will get for the company. But keeping in mind the diminishing characteristic of the marginal product, it does cost them something in effect to get more revenue. The equilibrium is the point where the company can hire more workers, pay them less, and get more revenue without hiring too many so that they dish out more than they take in.
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This note was uploaded on 02/05/2012 for the course ECONOMICS 101 taught by Professor Dr.edmondson during the Spring '11 term at Thomas Edison State.

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WA _4-1-MICRO - La Rosa1 Melissa La Rosa Dr. Edmondson...

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