Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 7.A, Problem 1P
To determine
The decision on substituting the capital for labor.
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Conceptually, what does it mean for the shadow price of capital to be equal to 1.3? (what does this particular number mean)?
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Chapter 7 Solutions
Principles of Economics (12th Edition)
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- Describe how workers and firms “marry” each other in the labor market when there are many types of jobs offering various levels of risk to their workers. What does the slope of the hedonic wage function measure?arrow_forwardThe demand curve for labor will shift upward and to the left if labor becomes more productive. TRUE OR FALSE If total utility increases as wealth increases, the first derivative of the utility function is negative. TRUE OR FALSEarrow_forwardSuppose that a unit of capital costs three times as much as a unit of labor.If a firm currently has a technology such that MPK =50, MPL =30, how should this firm adjust its capital and labor choices?arrow_forward
- Q3. Consider a utility function with one consumption good q1 and one type of leisure q2a) Derive complete labour supply function.b) Under what condition the labour supply curve will be negatively sloped.arrow_forwardIs this change labor saving, capital saving, or neutral?arrow_forward''A firm should never employ another worker if the new person causes diminishing returns''. Is statement correct? if so why? if not explain why not?arrow_forward
- The following are correct statements about the Marginal Productivity of Labor (MPL), EXCEPT: Question 15 options: It is the increase in production per worker generated by technological innovations Is the increase in total production coming from an increase in one unit of labor Is increasing at early stages of production because the beneficial effect of division of labor in early stages of production. It will eventually decline because additional workers will eventually over-saturate the production process.arrow_forwardIn the competitive labor market model of this chapter, the "value of the marginal product minus the wage" (MPL xP - W) for a given unit of labor (e.g., worker) gives Group of answer choices a) the change in output from the unit of labor being considered. b) the change in profit from the unit of labor being considered. c) the change in revenue from the unit of labor being considered. d) the change in price from the unit of labor being considered. e) the change in cost from the unit of labor being considered.arrow_forwardFor the production function Q = K0.6L0.8 and the budget 125 = 3K + 5L find the NEW LEVEL in the optimal employment of labor (L) after wages change by a factor of 1.4 while maintaining the same level of output. Please enter your response as a positive number with 1 decimal and 5/4 rounding (e.g. 1.15 = 1.2, 1.14 = 1.1). I Know that the correct answer is 12.4 +/- 1 I am just unsure how to get that answer.arrow_forward
- Under what assumptions is the aggregate labour demand function to be represented as a downward-sloping curve so that the real wage equals the marginal product of labour?arrow_forwardIn this section you have to indicate whether you think the statement is true or false and explain why. If employees can move among employers in a costless way, labour demand curve will be horizontal.arrow_forwardConsider the following model of a competitive labour market where both firms and workers have perfect foresight and symmetric information about the price level (that is, no misperceptions). Firms' technology is given by the production function y = a N ½ (production function) where a is a positive constant representing total productivity, N is employment and the elasticity of production to employed labour is 1/2. The government requires firms to pay pension contributions to the fiscal authority: the contribution is a small fraction x of the wage paid to each employed worker. Therefore, firms profits equal P y - W N - x W N and they are maximized taking the price level P, the nominal wage W, and the pension contribution rate x as given. Labour supply is given by: W = P b N where b is a positive constant. Answer all the following questions. a) Derive the labour demand schedule by solving the profit maximization problem of firms.arrow_forward
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