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# 1) (5 points) Labor markets and wage determination Table 1: table got separated, but the numbers under Workers and Output(brownies) is the table....

1)    (5 points) Labor markets and wage determination

Table 1: table got separated, but the numbers under Workers and Output(brownies) is the table. Brownie output and number of workers. Brownies sell for \$2.50 each.

Workers

output( brownies)

1

10

2

19

3

27

4

34

5

40

6

45

7

49

8

52

9

54

10

55

a)     Nick Seaman (Black Sheep Bakery in Amherst) has estimated the number of brownies produced for different numbers of workers (see table 1).  Why does output increase with more workers? Why does output increase at a diminishing rate?

b)    Draw graph of the demand for labor as a function of the wage using the data in table 1. What happens to the number of workers hired when wages go up?

c)     Now draw a graph of the marginal revenue product of labor assuming efficiency wages where output increases with higher wages. In this model, does employment and output fall when wages rise?

d)    Brownie sell for \$2.50 apiece ; ingredients cost \$1 per brownie. Use this table to recommend the number of workers he should hire, and the output of cookies he should produce, for a wage of \$13.50, \$10.50, \$9.00.  Bear in mind that the revenue produced by each worker is the net after taking account of other variable costs.

e)     Nick buys a second oven and estimates output, see table 2

Table 2. Brownie output and number of workers, two ovens

Workers

Brownie output

1

10

2

24.5

3

38.5

4

52

5

64.75

6

76.75

7

87.75

8

97.75

9

106.75

10

114.75

Again, assume ingredients cost a dollar per brownie.  Use this table to recommend the number of workers he should hire, and the output of cookies he should produce, for a wage of \$21, \$18, \$13.50.

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