Fall 2001
Practice Questions 9
Question 1:
Data for a pumpkin farmer who can hire pumpkin pickers at $9 per day is provided below:
# of pickers |
Revenue from pumpkin sales |
1 |
$30 |
2 |
$48 |
3 |
$62 |
4 |
$72 |
5 |
$80 |
6 |
$84 |
If the farmer maximizes profits, how many pumpkin pickers should he hire?
Question 2:
Two firms, A and B, operate in different but competitive industries. They both require labor with the same level of ability and skills and the labor market is also perfectly competitive. We know that the marginal product of labor for firm A is 8 and the marginal product of labor at firm B is 12. In addition, firm A faces a price of $6 per unit of output it produces. What should be the price at which firm B sells its product if both firms are maximizing their profits?
Question 3:
Suppose that East Ten is one of the shoemakers in the
perfectly competitive market for shoes. The market demand for shoes is given by
P = 100 – QD
and the market supply is given by P
= QS. The market for shoes is in long run equilibrium. East Ten
employs workers in a perfectly competitive labor market which is characterized
by the demand equation W = 1000 – 3L and the supply equation W = 2L. (Note: W stands for the weekly
wage rate and L stands for the quantity of workers.)
Identify the equilibrium wage rate and the number of workers employed by East
Ten if its marginal product of labor is given by MPL = 30 – L.
Question 4:
Suppose that there
is an automobile manufacturer and a catering firm in town which use labor with
similar skill levels in production. Furthermore suppose that these two firms
are the only employers in this particular labor market and they act as
perfectly competitive firms in the labor market. The catering firm has the
following labor demand equation: W
= 100 – 5L while the automobile
manufacturer has a labor demand curve given by W = 200 – 5L.
If the residents supply labor according to the supply curve W = L + 10 , what is the equilibrium wage? What is the
equilibrium quantity of workers employed? How many workers does each firm
employ?
Multiple Choice
Questions: