Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 25, Problem 5CQ
To determine
Consistency of the statements in the economy.
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Which of the statement is FALSE?
A. An increase in the relative price of good X will increase the real price of the factor that is used intensively in the production of good X.
B. A decrease in the relative price of good X will decrease the marginal productivity of the factor that is used scarcely in the production of good X.
C. A decrease in the relative price of good X will increase the inverse of the relative factor price that is used in the production in good X.
D. A decrease in the relative price of good X will increase the marginal productivity of the factor that is used intensively in the production of good X.
Wenatchee is the apple capital of the world (or at least that's what the sign says). One of the many great things about apples is that the firms who produce it are likely price takers in both input and output markets.
Imagine that there is a hurricane in Florida which damages a large part of the orange crop which is typically grown there.
a. Show the effect of this in the orange market.
b. Show the effect of this in the apple market. (Assume that no apples are grown in Florida.)
c. Show the effect of this in the market for orchard workers in Wenatchee (the apple capital of the world). Please make sure to label the axes appropriately for a labor market. Briefly explain the reason for what you draw here in relation to the other parts.
Suppose the productivity of capital and labor are as shown in the accompanying table. The output of these resources sells in a purely competitive market for $1 per unit. Both capital and labor are hired under purely competitive conditions at $3 and $1, respectively. a. What is the least-cost combination of labor and capital the firm should employ in producing 80 units of output? Explain. b. What is the profit-maximizing combination of labor and capital the firm should use? Explain. What is the resulting level of output? What is the economic profit? Is this the least costly way of producing the profit maximizing output?
Chapter 25 Solutions
Economics: Private and Public Choice (MindTap Course List)
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- The nation of Ectenia has 20 competitive apple orchards, all of which sell apples at the world price of $2 per apple. The following equations describe the production function and the marginal product of labor in each orchard: Q=100 L-L2 MPL = 100-2L Where Q is the number of apples produced in a day, L is the number of workers, and MPL is the marginal product of labor a. What is each orchard's labor demand as a function of the daily wage W? What is the market's labor demand? b.Ectenia has 200 workers who suply their labor inelastically. Solve for the wage W How many workers does each orchard hire ? How much profit does each orchard owner make? c.Calculate what happens to the income of workers and orchard owners if the world price doubles to $4per apple. d. Now suppose the price is back at $2 per apple, but a hurricane destroys half the orchards. Calculate how the hurricane affects the income of each worker and of each remaining orchard owner. What happens to the income of Ectenia as a…arrow_forwardConsider Live Happley Fields, a small player in the strawberry business whose production has no individual effect on wages and prices. Live Happley's production schedule for strawberries is given in the following table: Labor Output (Number of workers) (Pounds of strawberries) 1 18 34 3 48 4 60 70 Suppose that the market wage for strawberry pickers is $170 per worker per day, and the price of strawberries is $12 per pound. On the following graph, use the blue points (circle symbol) to plot Live Happley's labor demand curve when the output price is $12 per pound. Note: Remember to plot each point between the two integers. For example, when the number of workers increases from 0 to 1, the value of the marginal product of for the first worker should be plotted with a horizontal coordinate of 0.5, the value halfway between 0 and 1. Line segments will automatically connect the points. Demand P=$12 210 Demand P=$16 190 120 20 LABOR (Number of workera) ueuoM Jad seyog) 3oVarrow_forwardConsider Blewitt's Farm, a small blueberry grower relative to the size of the market whose production has no impact on wages and prices. The following table presents Blewitt's production schedule for blueberries: Suppose that the market wage for blueberry pickers is $118 per worker per day, and the price of blueberries is $16 per pound. Suppose that the market wage for blueberry pickers is $118 per worker per day, and the price of blueberries is $16 per pound. On the following graph, use the blue points (circle symbol) to plot Blewitt's labor demand curve when the output price is $16 per pound. Note: Remember to plot each point between the two integers. For example, when the number of workers increases from 0 to 1 , the of marginal product of for the first worker should be plotted with a horizontal coordinate of 0.5 , the value halfway between 0 and 1 . Line segments will automatically connect the points. At the given wage and price level, Blewitt's should hire ____ pickers. Suppose…arrow_forward
- In the plot below, are capital and labor substitutes or complements. Why?arrow_forwardSuppose that a car dealership wishes to see if efficiency wages will help improve its salespeople's productivity. Currently, each salesperson sells an average of 1 car per day while being paid $24 per hour for an 8-hour day. Instructions: Enter your answers as a whole number. a. What is the current labor cost per car sold? b. Suppose that when the dealer raises the price of labor to $34 per hour, the average number of cars sold by a salesperson increases to 2 per day. What is now the labor cost per car sold? By how much is it higher or lower than it was before? (Click to select) by $ Has the efficiency of labor expenditures by the firm (cars sold per dollar of wages paid to salespeople) increased or decreased? (Click to select) c. Suppose that if the wage is raised a second time to $46 per hour, the number of cars sold rises to an average of 2.5 per day. What is now the labor cost per car sold? d. If the firm's goal is to maximize the efficiency of its labor expenditures, which of the…arrow_forwardConsider the labor market in an imaginary coastal town called Nutsland. There is only one buyer in that market, namely Nutsland Farm that operates with a production function of Q= L- The supply of labor is given as L=w-2, where w is the wage. On the output side, Olive Farm takes the price P =20 TL/kg for its olive oil as given due to intense competition in that market. a. Find Olive Farm's profit-maximizing labor demand. What wage does it have to pay? b. What would be the wage in Nutsland if the market were competitive? c. Compare the welfare implications of a) versus b). Calculate the deadweight loss and show it on a graph.arrow_forward
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