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E202Solutions9.1 - Problem Set Nine Solutions Chapter 13 1...

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Problem Set Nine Solutions Chapter 13 1. Mountain Breeze supplies air filters to the retail market and hires workers to assemble the components. An air filter sells for $26, and Mountain Breeze can buy the components for each filter for $1. Sandra and Bobby are two workers for Mountain Breeze. Sandra can assemble 60 air filters each month, and Bobby can assemble 70. If the labor market is perfectly competitive, how much will Sandra and Bobby be paid? Answer : Sandra’s marginal product is 60 air filters per month, and the value of her marginal product is VMP = ($25/filter) (60 filters/mo) = $1,500/mo. Bobby’s marginal product is 70 air filters per month so his VMP is ($25/filter) (70 filters/mo) = $1,750/mo. Since the labor market is competitive, Sandra and Bobby will earn exactly their respective VMPs each month. 2. Stone, Inc., owns a clothing factory and hires workers in a competitive labor market to stitch cut denim fabric into jeans. The fabric required to make each pair of jeans costs $5. The
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