Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 16, Problem 5DQ
To determine
Substitution and output effect.
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Florida citrus growers say that the recent crackdown on illegal immigration is increasing the market wage rates necessary to get their oranges picked. Some are turning to $100,000 to $300,000 mechanical harvesters known as “trunk, shake, and catch” pickers, which vigorously shake oranges from the trees. If widely adopted, what will be the effect on the demand for human orange pickers? What does that imply about the relative strengths of the substitution and output effects?
Florida citrus growers say that the recent crackdown on illegal immigration is increasing the market wage rates necessary to get their oranges picked. Some are turning to $100,000 to $300,000 mechanical harvesting machines known as “trunk, shake, and catch” pickers, which vigorously shake oranges from the trees. If widely adopted, how will this substitution affect the demand for human orange pickers? What does that imply about the relative strengths of the substitution and output effects?
Consider a firm that produces output using industrial robots and skilled labor. Suppose it is the case
that a reduction in the price of industrial robots causes the firm's labor demand curve for skilled
workers to increase (i.e., to shift to the right). This implies that:
There is diminishing marginal product of robots.
O There is diminishing marginal product of skilled labor.
O Robots and skilled labor are complements.
O Robots and skilled labor are substitutes.
The unit cost of skilled labor is below the unit cost of robots.
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- Suppose that the production of a certain product only requires one input, labor, and that the additional production diminishes by half after the last input. On the other hand, the demand of the good can be described using the equation Q = 10000 – P/10. The total product of the second unit of labor is 3,000 unite. Finally, each additional worker requires P1,000,000. Given the following information, answer the following questions: What is the marginal revenue product of the third unit of labor? Answer: 500 How would you characterize the marginal revenue product of labor? How would you characterize the labor market that this firm faces?arrow_forwardSuppose that firms face the following production function: Q=InL +Ink. What is the degree of elasticity of substitution? 02/3 1 infinity 1/3arrow_forward6. A firm produces an output good q using one input good x according to the production function f(x) = 4√x. The output price is given by p, the input price is given by w. Determine the profit maximizing factor demand function and the supply function. 7. What does it mean if two production factors are perfect substitutes (perfect comple- ments)? 8. Consider the following production functions. For which functions are the production factors perfect substitutes or perfect complements? (a) f(x₁, x₂) = x₁ + x2 (b) f(x₁, x₂) = √√x₁ + √√√x₂ (c) f(x₁, x₂) = √ax₁ + bx₂ (d) f(x1, x2) = min{a√x₁, b√x2} (e) f(x₁, x₂) = [xf + x2] ²arrow_forward
- Argue using a graph that the elasticity of substitution for a linear production function, f(1, k) = al + bk, is infinite. Hint: dividing by something really small makes the quotient really big.arrow_forwardQuestion 2: Elasticity of Substitution Show that the production function f (x1,x2) = a ln x, + ß In x, has elasticity of substitution equal to one. a) Find the marginal rate of technical substitution MRTS,2, express it in terms of a ratio of x2 to x1, call this r = X1 b) Take logs on both sides, c) Find the derivative of In MRTS12 with respect to In r. The inverse of this quantity is the elasticity of substitution.arrow_forwarda) For an output level of 40 units, calculate the marginal rate of technical substitution between points A and B. b) Also for an output level of 40 units, calculate the marginal rate of technical substitution between points D and Earrow_forward
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