Labor Economics
7th Edition
ISBN: 9780078021886
Author: George J Borjas
Publisher: McGraw-Hill Education
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Question
Chapter 3, Problem 5RQ
To determine
Explain the long-run wage and the substitution effect of the labor.
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Suppose the wage increases. Show that in the long run the firm will hire fewer workers. Decompose the employment change into substitution and scale effects.
Suppose the wage increase, show that in the long run
the firm will hire fewer workers. Decompose (analyze)
the employment change into substitution and scale
effect (use graph)
Con Co. produces a collectible card game. Currently, the price of capital is at $50 and the price of labor is at $10. The marginal product of capital is 200 and the marginal product of labor is 30. To minimize cost of the given output, Con Co. should
Use more capital
Use more capital and labor
Leave capital and labor as is
Use more labor
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- in the long-run with strictly convex isoquants. If the relative price of labor (w/r)exceeds the marginal rate of technical substitution ( Mpl/Mpk)What changes should happen to the input mix? Explain your answer.arrow_forwardConsider the production of copper pipes that can be represented by a production function that is linear. Such a production function represents production where capital and labor Multiple Choice cannot be substituted. are perfect substitutes. are partly substitutable, cannot be determined.arrow_forwardIn the long-run with strictly convex isoquants. If the relative price of labor (?⁄?) exceeds the marginal rate of technical substitution ( Mpl/??k ). What changes should? happen to the input mix? Explain your answer.arrow_forward
- In the long run with strictly convex isoquants. If the relative price of labor (w/r) exceeds the marginal rate of technical substitution (MP.L/MP.k). What changes should happen to the input mix? Explain your answer.arrow_forwardCalculate the Marginal Product (MP) at each input level. If the price of printer is $100 each, calculate the Value of the Marginal of labor (VMPL). If the wage rate (per week) is $1800 , how many workers will be employed? If the firm decides to hire 14 workers, what is the maximum wage the firm would be willing to pay?arrow_forwardWhy does the marginal product of labor start to decrease after a certain number of workers are hired? What makes the difference? a) The variable input continues to increase while the fixed input is fixed. b) Both the variable and the fixed inputs are increasing at the same rate. is it a or b?arrow_forward
- True 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_forwardSuppose that firm's short-run 4 a production function is q=10/T – 1. 5.1 Find the level(s) of maximise the firm's average product of L that labour (APL). 5.2 Calculate the value of the second- order derivative (SOD) at the value of L found in 5.1 that maximises APL 5.3 Calculate the marginal product of labour (MPL) at the level(s) of L that maximises APLarrow_forwardIf the Marginal Product of Labor(MPL) for the 2nd worker is 500 units. What is the firms average Fixed Cost (FC) of producing 1,500 gadgets?arrow_forward
- F(L, K) = (min{L, K})^1/3 i. Calculate the marginal product for each input, and indicate whether each marginal product is diminishing, constant, or increasing.ii. Calculate the marginal rate of technical substitution for each function.iii. Also indicate whether the function exhibits constant, increasing, or diminishing returns to scale.arrow_forwardJuan Valdez owns a coffee farm in Colombia. His production function is: f(x1,x2)=(x1−1)^0.25 x2^0.5 Assume the price of input 1 is r and the price of input 2 is w. (a) Write down an expression for the technical rate of substitution. (b) Find Juan's demand for inputs conditional on the quantity y of coffee Juan wants to produce. (c) Find Juan's cost function. (d) What is the supply function of Juan's firm?arrow_forwardIf a firm uses labor to produce output, the firm’s production function depicts the relationship between Group of answer choices the number of workers and the quantity of output. marginal product and marginal cost. the maximum quantity that the firm can produce as it adds more capital to a fixed quantity of labor. fixed inputs and variable inputs in the short run.arrow_forward
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