microeconomics book solution 12

B when productivity growth is positive any given

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b. When productivity growth is positive, any given quantity of labor can produce more output, causing the total product curve to shift upward. Since each unit of labor can produce more output, the marginal product of labor will increase and the marginal product of labor curve will shift upward. In panel (a) of the accom- panying diagram, the upward shift of the total product curve is illustrated by the MC ATC AVC 5 6 7 8 9 10 4 3 2 1 0 $600,000 500,000 400,000 300,000 200,000 100,000 Cost of car Quantity of cars S-176 C H A P T E R 1 2 B E H I N D T H E S U P P LY C U R V E : I N P U T S A N D C O S T S S171-S184_Krugman2e_PS_Ch12.qxp 9/16/08 9:22 PM Page S-176
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movement from its initial position, TP 1 , to its new position, TP 2 . In panel (b), the upward shift of the marginal product of labor curve is illustrated by the move- ment from its initial position, MPL 1 , to its new position, MPL 2 . c. When productivity growth is positive, the marginal cost curve and the average total cost curve will both shift downward, assuming labor costs have not changed. In the accompanying diagram, the movement of the average total cost curve is illustrated by the shift from its initial position, ATC 1 , to its new position, ATC 2 . The movement of the marginal cost curve is illustrated by the shift from its initial position, MC 1 , to its new position, MC 2 . d. Rising labor costs will shift the average total cost and marginal cost curves upward. Productivity growth will counteract this, shifting the average total cost and marginal cost curves downward. 7. Magnificent Blooms is a florist specializing in floral arrangements for weddings, graduations, and other events. Magnificent Blooms has a fixed cost associated with space and equipment of $100 per day. Each worker is paid $50 per day. The daily production function for Magnificent Blooms is shown in the accompanying table. Quantity of labo r Quantity of flo r al (wo r ke r s) a rr angements 0 0 1 5 2 9 3 12 4 14 5 15 Cost of unit Quantity MC 1 MC 2 ATC 1 ATC 2 Quantity Marginal product of labor Quantity of labor Quantity of labor MPL 1 MPL 2 TP 2 TP 1 (b) Marginal Product Curves (a) Total Product Curves C H A P T E R 1 2 B E H I N D T H E S U P P LY C U R V E : I N P U T S A N D C O S T S S-177 S171-S184_Krugman2e_PS_Ch12.qxp 9/16/08 9:22 PM Page S-177
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Solution a. Calculate the marginal product of each worker. What principle explains why the marginal product per worker declines as the number of workers employed increases? b. Calculate the marginal cost of each level of output. What principle explains why the marginal cost per floral arrangement increases as the number of arrangements increases? 7. a. MPL, shown in the accompanying table for the five workers, is the change in out- put resulting from the employment of one additional worker per day. MPL falls as the quantity of labor increases due to the principle of diminishing returns.
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