08 Jun Question Name ____________________________ last 4 PSU ID ______
Question
Name ____________________________ last 4 PSU ID _______
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Fall 2015 Chuderewicz -YOU MUST HAND IN HW IN THE SECTION YOU ARE REGISTERED FOR – NO EXCEPTIONS
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Economics 304
Homework #2 – The market for labor (Chapter 3)
Due Friday, 9/18 at the beginning of class– – no late papers accepted!
Instructions: Please show all work or points will be taken off. Good luck!
1. (50 points total – 5 points for each of 8 parts plus 10 for part i
The production function of a firm is given in the table below.
Number of workers
Units of output
MPN
0
0
1
48
2
84
3
108
4
128
5
143
6
155
7
165
a. Define the marginal product of labor and explain how it relates to the production function (with N on horizontal axis and Y on vertical axis). What shape does a production function typically take and why?
b. Fill in the MPN column. Does this production function have the typical shape that you identified above. Why or why not?
c. Assume that the price of a unit of output is $10 and the nominal wage that you pay is $210. Calculate the number of workers that you will hire and the associated profit in REAL terms (as we did in class, we ‘assume away’ all other costs of production).
d. Suppose that you are producing a commodity that you sell to China and given the slowdown in China’s economy, the price of your product falls to $7. Explain how and why you would change your behavior. Please provide the intuition beginning your answer with… at the same level of labor input I am no longer ……… (please be as specific as possible).
e. Calculate the new level of profits in REAL terms given the fall in price.
f. Suppose that you have debt and that the payment is $200 per period. Calculate the percent of profits that $ 200 represents given the conditions in part c. and then calculate the percent of profits that $200 represents given the conditions in d.
g. Suppose that profits and stock prices together as they usually do and that you own stock in this company. If you had a crystal and predicted the slowdown in China, would you sell stock before China slows down or would you hold on and sell the stock after China slows down?
h. Let’s return to the original conditions as in part c. Suppose that through research and development, you discover a new and abundant supply of your commodity so that the marginal product of labor for each worker rises by 2. Given this development. fill in table below.
Number of workers
Units
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