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Question

1. In May 2020, the civilian population 16 years old and older was 280,309,000. The number employed was 157,975,000 and the number unemployed was 20,514,000.

a. How many people were in the labor force?

b. How many people were out of the labor force?

c. What was the labor force participation rate?

d. What was the unemployment rate?

1. Consider the following table of output generated by different numbers of workers at a firm.

For numbers of workers from 6 to 10, fill in the marginal product of labor and the marginal revenue product of labor assuming the product price is \$6. (For example, for 6 workers the marginal product of labor would be 18 minus 11.) In the short run, if the wage rate is \$32 per hour, how many workers should the firm hire? (Assume a competitive labor market.)

Suppose a firm uses 90 units of capital at \$120 per unit per month, and 30 workers at \$2000 per worker per month. Suppose the marginal product of capital is 200 units of output per month, and the marginal product of labor is 4000 units of output per month.

1. What would be the additional cost of increasing output by 1000 units by adding labor?
2. What would be the additional cost of increasing output by 1000 units by adding capital?
3. In the long run, would it be cheaper to expand output by increasing capital or increasing labor?
4. Is the firm minimizing costs with its levels of capital and labor?
5. Would it be cheaper to increase output in the short run or the long run?
6. Suppose production at a firm depends on labor and capital, with prices w and r, respectively. Initially the firm faces market prices of w = \$9 and r = \$6. These prices then shift to w = \$9 and r = \$8.
7. In what directions will the substitution effect change the firm's employment and capital stock?
8. How will the scale effect change the firm's employment and capital stock?
9. Can we say conclusively whether the firm will use more or less labor?
10. Can we say conclusively whether the firm will use more or less capital?
11. In the market for lathe operators, suppose the number employed at \$25 an hour would be 125,000 and the number employed at \$30 an hour would be 110,000.
12. What is value of the own-wage elasticity of demand?
13. If the wage is \$30 an hour, everything else the same, how much should the wage decline to increase employment in the labor market by ten percent?

Number of workers
Output per hour
Marginal product of labor
Marginal revenue product
of labor
5
11
6
18
7
24
8
29
9
33
10
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