1.) When the marginal product of labor is smaller than its average product a. Ma
ID: 1126983 • Letter: 1
Question
1.) When the marginal product of labor is smaller than its average product
a. Marginal cost must be declining
b. Marginal cost must be smaller than average cost
c. Average variable cost must be greater than marginal cost
d. Marginal cost must be greater than the average variable cost
2.) If the ratio between the price of labor and the price of capital (w/r) is smaller than the ratio between marginal product of labor and marginal product of capital (MPL / MPK)
a. The firm should hire more labor
b. The firm should hire more capital
c. The firm should hire capital and labor equally
d. The firm should reduce the amount of labor while keeping its capital constant
3.) Suppose the price of one unit of labor (wage) is $15 where its marginal product is 5 units of output. Thus we can say:
a. The marginal revenue of the firm is greater than $5
b. The marginal cost of the firm is $5
c. The marginal cost of the firm is $0.33
d. The maginal cost of the firm must be greater than its average cost
Explanation / Answer
1.) When the marginal product of labor is smaller than its average product, average product is falling. When average product is falling average variable cost and average total cost are rising. And average variable cost rises only when marginal cost is greater than average variable cost. Hence option C is correct
2.) If the ratio between the price of labor and the price of capital (w/r) is smaller than the ratio between marginal product of labor and marginal product of capital (MPL / MPK), it also means that MPL/w > MPK/r. When this is true, firm must hire more labor as it is more productive in per worth dollar. Hence option A is correct
3.) Suppose the price of one unit of labor (wage) is $15 where its marginal product is 5 units of output. Thus we can say that the firm is paying a wage rate using VMPL = w equation and so the price or marginal revenue of output is 15/5 = $3. At this price, marginal cost must be greater than or equal to average cost. Option D is correct.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.