Concept explainers
Sub part (a):
The monopsony market.
Sub part (a):
Explanation of Solution
The total labor cost can be calculated by using the following formula.
Substitute the respective value in the equation (1) to calculate the total labor cost at one unit of labor.
The total labor cost is $3.
The marginal resource cost can be calculated by using the following formula.
Substitute the respective values in the equation (2) to calculate the marginal resource cost at one unit of labor.
The marginal resource cost is $3.
Table -1 shows the value of the total labor cost and the marginal resources cost that are obtained by using the equation (1) and (2).
Table -1
Units of labor | Wage rate | Total labor cost | Marginal resources cost |
0 | - | 0 | |
1 | 6 | 6 | 6 |
2 | 9 | 18 | 12 |
3 | 12 | 36 | 18 |
4 | 15 | 60 | 24 |
5 | 18 | 90 | 30 |
6 | 21 | 120 | 36 |
The total revenue can be calculated by using the following formula.
The
Substitute the respective value in the equation (3) to calculate the total revenue at one unit of labor.
The total revenue is $34.
The marginal product can be calculated by using the following formula.
Substitute the respective values in the equation (4) to calculate the marginal resource cost at one unit of labor.
The marginal product is $17.
The marginal revenue product can be calculated by using the following formula.
The
Substitute the respective values in the equation (5) to calculate the marginal revenue product.
The marginal revenue product is $34.
Table -2 shows the value of the total revenue, the marginal revenue product and the marginal product that is obtained by using the equation (3), (4) and (5).
Table -2
Units of labor | Total product | Marginal product | Product price | Total revenue | Marginal revenue product |
0 | 0 | 2 | 0 | ||
1 | 17 | 17 | 2 | 34 | 34 |
2 | 31 | 14 | 2 | 62 | 28 |
3 | 43 | 12 | 2 | 86 | 24 |
4 | 53 | 10 | 2 | 106 | 20 |
5 | 60 | 7 | 2 | 120 | 14 |
6 | 65 | 5 | 2 | 130 | 10 |
Graph -1 shows the firms labor supply and the marginal resources cost.7
In graph -1, the horizontal axis measures the units of labor and the vertical axis represents the wage rate. The discrete nature of problem requires that the (MRP) marginal revenue product should be equal or greater than the marginal resources cost. This marginal revenue cost curve lies above the labor supply because the employing of the next worker needs a higher wage in the market and will have to pay a higher wage for all the workers.
Concept introduction:
Monopsony: The monopsony market refers to a market which consists of a single buyer who hires a particular type of labor. The workers provide labor to this type of market that has a limited employment opportunity as they need to acquire new skills to be hired. The firm is the wage marker.
Subpart (b):
How many workers should the firm employ.
Subpart (b):
Answer to Problem 3P
The firm should employ 3 workers.
Explanation of Solution
When the marginal revenue product for this worker is greater than the marginal cost, then the firm should employ the workers. From the table, the firm should employ three workers. For the first worker, the marginal revenue product is $34 and the marginal revenue cost is $6. Thus, the firm should employ the first worker. For the second worker, the marginal revenue product is $28 and the marginal revenue cost is $12. So, the firm should employ the second worker. For the third worker, the marginal revenue product is $24 and the marginal revenue cost is $18. So the firm should employ the third worker. But for the fourth worker, the marginal revenue product is $20 and the marginal revenue cost is $24. So, the firm should not employ the forth worker.
Subpart (c):
What happens to the monopolist employment and equilibrium wage rate.
Subpart (c):
Explanation of Solution
In this, the monopolist employment decreases by 2 units and the equilibrium wage rate is $2 which is less than the competitive wage.
Want to see more full solutions like this?
Chapter 17 Solutions
Microeconomics
- Workers Pizza Fixed cost in $ per day per day Variable cost in S TC per day 400 per day [25 (75 400 200 6 00 750 850 400 350 450 115 400 145 400 600 lo00 1200 170 400 800 8. Referring to the table above, when the second worker is hired, the marginal cost per pizza is equal to: a) $3 b. $75 750-600 75-25 150 ATC %3D 5u C. $50 d. $150 Duutp Dout 際ATCarrow_forwardThe table below shows your production function relating output per number of hired workers (assume no changes to the capital and size of the convenient store. Use the given information to find the Marginal Product of Labor. Workers Total Output 0 0 1 2 3 4 LO 5 90 149 182 197 202 Marginal Product A OHire a number of workers where marginal product is positive OHire a number of workers where marginal product is negative OHire the number of workers where marginal product is maximized — ← What should determine the number of workers to hire if your goal is to maximize efficiency? OHire as many employees as possible OHire the minimum number of workersarrow_forwardYou are an employer seeking to fill a vacant position on an assembly line. Are you more concemed with the average product of labor or the marginal product of labor for the last person hired? O A. The marginal product of labor because to maximize profits, you will want to hire labor up to but not exceeding the point where labor begins to experience diminishing marginal returns. O B. The average product of labor because productivity is maximized when average product is maximized This determines the output where revenue and profit are maximized. O C. The average product of labor because to maximize profits, you will want to hire labor up to but not exceeding the point where labor begins to experience diminishing marginal returns O D. The marginal product because it measures the effect the last person hired has on output, or total product. This helps determine the revenue generated by hiring an another worker, which can be compared with the cost of hiring an another workerarrow_forward
- The following labor market graph applies to questions 13-16. Consider the following competitive labor market situation before and after a tax is levied on labor suppliers. (This would be as if the companies did not withhold any taxes from workers' paychecks. The workers would always be the ones mailing in any taxes owed on their pay from the firms.) W wd Wo Ws Imp E L L₁ Lo D(no tax) D. (with tax) L 13. Before the tax is imposed, firms' surplus is given by the area A + B + C. This surplus measures O the workers' addition to profit. O how much the firm is paying the workers. O how much more the workers are getting paid compared the combined minima the workers are willing to work for. O the firms' combined revenues. O the size of the wage.arrow_forwardThe table below shows a firm that is perfectly competitive in both the labor and product markets, showing how much daily output a firm can produce using various numbers of workers. Number of Workers 1 2 3 4 5 6 Output O $2 O $460 O $115 O $100 O $40 3 9 16 21 23 24 If output sells for $20/unit, what is the marginal revenue product of the 5th worker?arrow_forwardQuestion 19 widget-manufacturing The production function for a firm is given by q = 9K0.5L0.5, where q is the number of widgets produced each hour, K is the number of specialized staplers (which is fixed at 4 in the short run), and L is the number of employees. What is the marginal product of labor at L = 9? O 18 O 3 none of the abovearrow_forward
- The accompanying table describes the relationship between the number of workers hired by a call center each hour and the number of calls the call center can make each hour. The call center has only 1 telephone. The telephone costs the firm $5/hour (regardless of how many calls are made), and each worker is paid $10 per hour Calls Per Hour 1 2 6 16 O 22 24 What is the total cost of making 2 calls an hour? Multiple Choice O $45 $40 $20 Number of Telephones 1 1 1 1 1 1 $10 Number of Workers Per Hour 2 4 6 8 10 12arrow_forwardacroeconómic Policy and Natural Resources (10)|| Sp Time left 1:23:57 estion When a par ar firm is fully utilizing its capital, its output is given by Y = 10 × LO5. The cost of labour is OMR1 per unit. To maximize profit, how many units of labour should this firm use? wer saved -ked out of Flag O a. 50 estion O b. 100 О с. 5 O d. 25 O e. 3.16 CLEAR MY CHOICE NEXT PAGE PREVIOUS PAGE CET 0001 A 人 hparrow_forwardSuppose that the wage rate is $13 per hour and the price of the product is $2. Values for output and labor are in units per hour. b. L 0. 24 44 60 72 80 4 84 Find the profit-maximizing quantity of labor. (Assume the firm can hire up to 6 workers.) The profit-maximizing quantity of labor is worker(s). (Enter a numeric response using an integer.) Suppose that the price of the product remains $2 but that the wage rate increases to $36. Find the new profit maximizing level of L The profit-maximizing quantity of labor is worker(s). Suppose that the price of the product decreases to $1 and the wage remains at $13 per hour. Find the new profit-maximizing L.arrow_forward
- Suppose that marginal product doubled while product price tripled in the table belo Marginal Marginal Product (MP) Units of Total Product Product Price | Total Revenue Revenue Resource (Output) Product $2 $0 1 7 7 2 14 $14 2 13 6. 2 26 12 3 18 2 36 10 4 22 2 44 8 25 50 6 27 2 2 54 4 7 28 1 56 LOarrow_forwardO O c. 3 d. 2 Table 13-3 0 1 2 3 4 Refer to Table 13-3. At which number of workers does diminishing marginal product begin? O a. 1 O b. 4 Labor (Number of workers) (Units) (Dollars) Output Fixed Cost Variable Cost Total Cost (Dollars) 0 20 40 60 80 0 90 170 230 240 50 50 50 50 50 (Dollars) 50 70 90 110 130arrow_forward2. Consider a price-taking firm with total fixed cost of $80 and a market-determined price of $5 per unit for its output. The wage rate is $8 per unit of labor, the only variable input. Using the information provided, complete the table provided below. (7 pts) Marginal Total Revenue Variable Product Units of Labor Marginal Total Output Product Revenue Revenue Marginal Total Marginal Cost Cost Profit Cost 5 15 2 3 30 50 5 6 65 77 7 86 94 8 98 |10 96arrow_forward