Econ Micro (book Only)
6th Edition
ISBN: 9781337408066
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 11, Problem 6P
A
To determine
from the graph identify the equilibrium wage rate, the employment level, the
Concept Introduction:
Economic Rent: the extra amount earned by a resource (e.g. land, capital, or labor) by the quality of its current use
Opportunity Cost: the next best alternative forgone when making a decision between choices
Equilibrium wage rate: the intersection of demand and supply of labor
Demand for labor: this is a concept that defines the amount of demand for labor that an economy or firm is willing to employ at a given point of time.
B
To determine
the demand for labor, new equilibrium wage rate, employment level, Economic rent and opportunity cost in case there is an increase in the price of a substitute resource.
Concept Introduction:
Economic Rent: the extra amount earned by a resource (e.g. land, capital, or labor) by the quality of its current use
Opportunity Cost: the next best alternative forgone when making a decision between choices
Equilibrium wage rate: the intersection of demand and supply of labor
Demand for labor: this is a concept that defines the amount of demand for labor that an economy or firm is willing to employ at a given point of time.
C
To determine
The effect on the demand for labor when demand for the final product decreases, the new equilibrium wage rate and employment level and to determine whether there is a change in the economic rent and opportunity cost
Concept Introduction:
Economic Rent: the extra amount earned by a resource (e.g. land, capital, or labor) by the quality of its current use
Opportunity Cost: the next best alternative forgone when making a decision between choices
Equilibrium wage rate: the intersection of demand and supply of labor
Demand for labor: this is a concept that defines the amount of demand for labor that an economy or firm is willing to employ at a given point of time.
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1. Economic rent
The following graph shows a competitive labor market.
(?
50
Labor Demand
40
Labor Supply
Labor Supply
Economic Rent
Labor Demand
10
Opportunity Cost
2
4
6
10
QUANTITY OF LABOR (Billions of hours)
Based on the graph, the total amount paid to workers in this market (that is, total labor earnings) is
On the graph, use the green triangle (triangle symbols) to shade the portion of labor earnings that consists of economic rent. Then, use the purple
quadrilateral (diamond symbols) to shade the portion of labor earnings that consists of opportunity cost.
WAGE RATE (Dollars per hour)
4. Competitive labor market equilibrium
A company operates in a perfectly competitive market, selling each unit of output for a price of $30 and paying the market wage of $375 per day for
each worker it hires.
In the following table, complete the column for the marginal revenue product of labor (MRP) at each quantity of workers.
Labor Input
Total Output
(Number of workers) (Units of output)
Marginal Product Marginal Revenue Product
(Units of output) (Dollars)
WAGE RATE (Delars per day)
On the following graph, use the blue points (circle symbol) to plot the firm's labor demand curve. Then, use the orange line (square symbols) to show
the wage rate. Line segments will automatically connect the points. (Note: If you cannot place the wage rate at the level you want, move the two end
points individually.)
500
Hint: Remember to plot each point halfway between the two integers. For example, when the number of workers increases from 0 to 1, the marginal
revenue product for the first worker…
2. Graphing demand for labor and computing the optimal quantity
Consider a company operating in a competitive market. The company sells units of output and receives a price of $30 per unit, and pays a daily
market wage of $375 to each worker it employs.
In the following table, complete the column for the value of the marginal product of labor (VMPL) at each quantity of workers.
Marginal Product of Labor
(Units of output)
Value of the Marginal Product of Labor
(Dollars)
Labor
(Number of workers)
0
1
2
3
4
5
Output
(Units of output)
0
16
31
45
56
64
16
15
14
11
8
On the following graph, use the blue points (circle symbol) to plot the firm's labor demand curve. Then, use the orange line (square symbols) to show
the wage rate. (Note: If you cannot place the wage rate at the level you want, move the two end points individually.)
Hint: Remember to plot each point halfway between the two integers. For example, when the number of workers increases from 0 to 1, the value of
the marginal product…
Chapter 11 Solutions
Econ Micro (book Only)
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