Labor Economics
7th Edition
ISBN: 9780078021886
Author: George J Borjas
Publisher: McGraw-Hill Education
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Question
Chapter 3, Problem 4RQ
To determine
Explain the condition of profit maximizing by the firm.
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Suppose the firm is hiring labor and capital and that the ratio of marginal products of the two inputs equals the ratio of input prices. Does this imply that the firm is maximizing profits? Why or why not?
A manager hires labor and rents capital equipment in a very competitive market. Currently the wage rate is $12 per hour and capital is rented at $8 per hour. If the marginal product of labor is 60 units of output per hour and the marginal product of capital is 45 units of output per hour, is the firm using the cost-minimizing combination of labor and capital? If not, should the firm increase or decrease the amount of capital used in its production process?
Suppose that a production function of a firm is given by q = f(1) = 2√ī. It depends only on labor,
whose price per unit is w. The firm is a price taker and the price for the good it produces is p. What
is the quantity produced by the firm if the firm maximizes profits and what is the value of profit at
that quantity?
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- Suppose a firm is producing 2,475 units of output by hiring 50 workers (W = $20 per hour) and 25 units of capital (R = $10 per hour). The marginal product of labor and marginal product of capital are 30 and 15, respectively. Is the firm minimizing the cost of producing 2,475 units of output? Explain.arrow_forwardThe production function of a competitive firm is described by the equation y = 2x11/2 6x21/2. The factor prices are p1 = $3 and p2 = $4 and the firm can hire as much of either factor it wants at these prices. What is the firm’s marginal cost?arrow_forwardTrue or false and explain Suppose a firm’s marginal product of labour is MPL = 10/L, where L is measured in labour hours, the price of the product is $600, and the cost per hour of labour is $30. The firm currently employs 150 labour hours. In order to maximize the firm’s profits in the short run, the manager should increase its labour employment by 40 labour hours.arrow_forward
- A manager hires labour and rents capital equipment in a very competitive market. Currently the wage rate is $12 per hour and capital is rented at $8 per hour, whereas the marginal product of labour is 60 units of output per hour and the marginal product of capital is 45 units of output per hour. Show if the firm is using the cost-minimizing combination of labour and capital and give appropriate advice if necessary.arrow_forwardA firm operates in a perfectly competitive output market and a perfectly competitive input market. The production function for the firm is: f(N, K) = N K The price of labour is $10, and price capital $20. If the firm needed to produce 100 units, how much capital and how much labour should they use in the long-run?arrow_forwardA small specialty cookie company, whose only variable input is labor, finds that the average worker can produce 100 cookies per day, the cost of the average worker is $32 per day, and the price of a cookie is $1.00. Is the firm maximizing profit? The firm A. is not maximizing profit because the marginal revenue product of labor is greater than the wage. B. is not maximizing profit because the marginal revenue product of labor is less than the wage. C. is maximizing profit because the marginal product of labor is greater than the wage. D. is not maximizing profit because the price of the output is not equal to the wage. E. is not maximizing profit because the marginal product of labor is greater than the wage.arrow_forward
- A firm produces output according to the production function . If it sells its output in a perfectly competitive market at a price of 10, and if K is fixed at 4 units, what is this firm’s short run demand function for labor? (Remember profit maximizing labor demand).arrow_forwardQuestion 18 Consider a firm that has production function f(L,K)=4L2/3K1/3. What is the expression for this firm’s Marginal Product of labor? MPL(L,K)= 2K2/3/3L2/3. MPL(L,K)= 2K2/3/L1/3. MPL(L,K)= 2K1/3/3L1/3. MPL(L,K)= 5K2/3/3L2/3. MPL(L,K)= 8K1/3/3L1/3.arrow_forwardA firm minimizes its costs by using inputs such that the marginal product of labor is 10 and the marginal product of capital is 20. The price of capital is $10 per unit. What must the price of labor be? (hint: the marginal product per dollar should be equal for both inputs)arrow_forward
- Consider the following shortrun production function: (Q=100L- L*L), where Q is the output level and L is labour input If the price of output in the market is K.sh 50 and labour costs K.sh 1200 per hour, how many hours would the firm use to maximize profits. What is the profit maximizing level of output?arrow_forwardMicroeconomics II is the most fun course you ever took. Explain? A profit-maximizing competitive firm uses just one input, x. Its production function is q= 4(x)^1/2. The price of out-put is $28 and the factor price is $7. The amount of the factor that the firm demands is?arrow_forwardSuppose that labor is the only input used by a perfectly competitive firm. The firm’s production function is as follows: Number of Workers: 0, 1, 2, 3, 4, 5, 6, 7 Units of Output: 0, 7, 13, 19, 25, 28, 29, 29 a. Calculate the marginal product for each additional worker. b. Each unit of output sells for $10. Calculate the value of the marginal product of each worker. c. Compute the marginal profit if the wage is $100 a day. 2. Your enterprising uncle opens a sandwich shop that employs 7 people. The employees are paid $12 per hour, and a sandwich sells for $6. If your uncle is maximizing his profit, what is the value of the marginal product of the last worker he hired? What is that worker’s marginal product?arrow_forward
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