Ms. Amna Khan has opened a medium-sized bakery in Karachi. A loaf of bread is currently selling for Rs.14 over and above the cost of intermediate goods (flour, yeast, and so on). Assuming that labor is the only variable factor of production, the following table gives the production function for the bread. WORKERS LOAVES OF BREAD 15 2 30 3 42 4 52 60 66 7 70 a. Suppose the current wage rate in Pakistan is Rs.119 per hour. How many workers will Ms. Amna employ? b. Suppose the economy of Pakistan begins to grow, incomes rise, and the price of a loaf of bread is pushed up to Rs.20. Assuming no increase in the price of labor, how many workers will Ms. Amna hire? c. An increase in the demand for labor pushes up wages to Rs.125 per hour. What impact will this increase in cost have on employment and output in the bakery at the Rs.20 price of bread?

Ms. Amna Khan has opened a medium-sized bakery in Karachi. A loaf of bread is currently selling for Rs.14 over and above the cost of intermediate goods (flour, yeast, and so on). Assuming that labor is the only variable factor of production, the following table gives the production function for the bread. WORKERS LOAVES OF BREAD 15 2 30 3 42 4 52 60 66 7 70 a. Suppose the current wage rate in Pakistan is Rs.119 per hour. How many workers will Ms. Amna employ? b. Suppose the economy of Pakistan begins to grow, incomes rise, and the price of a loaf of bread is pushed up to Rs.20. Assuming no increase in the price of labor, how many workers will Ms. Amna hire? c. An increase in the demand for labor pushes up wages to Rs.125 per hour. What impact will this increase in cost have on employment and output in the bakery at the Rs.20 price of bread?

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter7: Production, Inputs, And Cost: Building Blocks For Supply Analysis

Section: Chapter Questions

Problem 9TY

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