Use the information in the table below to answer the next three questions 16 22

Question

Use the information in the table below to answer the next three questions 16 22 20 23 6. The marginal product (MP) of the fourth worker is d. 6 If this firm is selling output in a perfectly competitive market and the price of the output is $2 per unit, then the value of marginal product (VMP) of the third worker is 7. $5 $10 C $32 d. $48 8. If the price of the output is $2 per unit and the wage rate is $8 per hour, this profit-maximizing firm should hire workers a. 2 b. 3 d. 5 9. Derived demand is best represented by the demand for: b. c. d. nurses by hospitals theater tickets by theater goers restaurant meals by families train tickets by vacation travelers. 10. In a competitive labor market, an increase in the supply of labor, ceteris paribus, will a. b. c. d. decrease the demand of labor increase the demand of labor increase the market wage rate decrease the market wage rate

Explanation / Answer

6. Option B. 4

Explanation: Marginal product of the 4th worker is = output when 4 workers are employed - Output when 3 workers are employed = 20 - 16 = 4

7. Option B. $10

Explanation: Value of marginal product = marginal product * price per unit. Marginal product of the 3rd worker = 16 - 11 = 5. Market price per unit = $2.

Value of the marginal product = 5 * $2 = $10.

8. Option C. 4

Explanation: A profit-maximizing firm hires laborers up to the point when the wage equals the value of the marginal product of labor. Let us calculate the value of marginal product of labor of different laborers:

Labors

Output per hours

Marginal Product

Value of marginal product

0

0

-

-

1

5

5 – 0 = 5

5 * $2 = $10

2

11

11 – 5 = 6

6 * $2 = $12

3

16

16 – 11 = 5

5 * $2 = $10

4

20

20 – 16 = 4

4 * $2 = $8

5

23

23 – 20 = 3

3 * $2 = $6

We can see that when 4 llaborers are hired, the value of the marginal product of labor ($8) equals the wage rate ($8). So, the firm will hire 4 laborers.

Labors

Output per hours

Marginal Product

Value of marginal product

0

0

-

-

1

5

5 – 0 = 5

5 * $2 = $10

2

11

11 – 5 = 6

6 * $2 = $12

3

16

16 – 11 = 5

5 * $2 = $10

4

20

20 – 16 = 4

4 * $2 = $8

5

23

23 – 20 = 3

3 * $2 = $6

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