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E202PracticeExam3.10

# E202PracticeExam3.10 - 3 60 15 450 4 72 12 360 5 80 8 240 6...

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3 60 15 450 4 72 12 360 5 80 8 240 6 85 5 150 a. If the jeans sell for \$35 a pair, and the competitive market wages is \$250 per week, how many workers should Stone hire? How many pairs of jeans will the company produce each week? Answer : After deducting the \$5 cost of the fabric, the company receives \$30 from the sale of each pair of jeans. The marginal product of labor and the value of the marginal product of labor are shown on the table. Since the market wage is \$250/wk, it is not worthwhile to hire the fifth worker, whose VMP is only \$240/wk. The firm hires 4 workers and produces 72 pairs of jeans per week. b. If the price of jeans rises to \$45, how many workers will the company now hire? Answer : The final column of the table now has VMPs of 1000, 800, 600, 480, 320, and 200. Stone will now hire a fifth worker. 8. (15 pts) Suppose the demand and supply curves for unskilled labor in the Corvallis labor market are shown in the figure below. By how much will the imposition of a minimum wage at \$12 per hour reduce total economic surplus? Calculate the amounts by which employer surplus
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