In short-run, at what point should a firm stop hiring workers When the wage per
ID: 1196540 • Letter: I
Question
In short-run, at what point should a firm stop hiring workers When the wage per worker starts to increase When the price of capital starts to decrease When the firm's marginal gain from hiring an additional worker is zero When the firm's marginal profit from hiring an additional worker equals the cost of hiring that worker When the firm's value of marginal product equals zero The production function relates factor prices to output prices. wages to labor employed. factors of production to total output. factors of production to profit. the output price to factors of production. How does a profit-maximizing firm that is operating in a competitive labor market respond to a decrease in the wage rate The firm will demand more capital due to the substitution effect. The firm will demand less labor due to the substitution effect. The firm will produce more output due to the scale effect. The firm will demand less capital due to the scale effect. The firm will demand less labor due to the scale effect. In the long run, a decrease in the competitive wage will be associated with which of the following A substitution effect in favor of employing more capital A scale effect in favor of employing more labor More employment if the wage decrease was a result of a decrease in the demand for labor. Iess employment if the wage decrease was a result of an increase in the supply of labor An increase in the output priceExplanation / Answer
1. The firm should hire those many workeres where Marginal Revenue Product of a labor is exactly equal to the Marginal Cost of labour. in other words option (d).
2. Answer is (c) factors of production to total output. To understand this remember production function Q = f(L,K) where Q = output, L = labour, K = capital.
3. If wages fall, then this will causes the supply of labor to fall - this is the substitution effect, which states that as the relative price of one good increases, consumption of that good will decrease. However, there is also an income effect - decreased wage means reduced income, and since leisure is a normal good, the quantity of leisure demanded will go down. In general, at low wage levels the substitution effect dominates the income effect and lower wages cause decrease in the supply of labor. option (d).
4. (A)
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