05 Jun Question 1. Given that the current wage is $110 and the price of output (Q) is equal to $3.00, complete the table on your exam sheet.
Question
1.
Given that the current wage is $110 and the price of output (Q) is equal to $3.00, complete the table on your exam sheet.
Fill in the following table (filling in Table correctly 5 points).
L
Q
MPL
MRP
Marginal Profit
Total Profit
0
0
–
–
–
0
1
40
2
90
3
130
4
160
5
180
6
190
2.
Use your table on the exam sheet to answer the following questions:
How many workers will the firm hire to maximize profits?
What are the maximum profits?
Explain why the firm doesn’t hire one less worker as well as why the firm doesn’t hire one more worker
Draw a production function diagram in the indicated area on your exam sheet, making sure you label the diagram completely including this initial point as Point A.
NOTE: You will be adding a Point B to this diagram later in this part of the exam.
5.
Draw a supply curve on your exam sheet in the indicated area. Locate Point A consistent with your Points A above. To get a second point on this original supply curve, pretend that prices go up to $4 and map out the change in the profit maximizing output, like we did in the lectures. This will give us our original supply curve.
NOTE: You will be adding a point B to this diagram later in this part of the exam.
6.
Suppose, due to a technological innovation, the marginal product of each worker rises by two. At the same time, due to tight labor markets, the wages that you must pay rise to $120 per day. Additionally, preferences for your product rise and thus prices rise to $5.00. Given these new conditions, on a piece of scrap paper, fill in a table like the following. The current wage is $120 and the price of output (Q) is equal to $5.00.
NOTE: You will not need to submit this table, but it will help you answer the following THREE questions.
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