ONLINECO 

Chapter 18. The Markets for the Factors of Production. Exercises 6-9.

 

6. Your enterprising uncle opens a sandwich shop that employs seven people. The employees are paid $6 per hour, and a sandwich sells for $3. If your uncle is maximizing his profit, what is the value of the marginal product of the last worker he hired? What is that worker’s marginal product?

 

7. Leadbelly Co. sells pencils in a perfectly competitive product market and hires workers in a perfectly competitive labor market. Assume that the market wage rate for workers is $150 per day.

a. What rule should Leadbelly follow to hire the profit-maximizing amount of labor?

b. At the profit-maximizing level of output, the Marginal product of the last worker hired is 30 boxes of pencils per day. Calculate the price of a box of pencils.

c. Draw a diagram of the labor market for pencil workers (as in Figure 4 of this chapter) next to a diagram of the labor supply and demand for Leadbelly Co. (as in Figure 3). Label the equilibrium wage and quantity of labor for boththe market and the firm. How are these diagrams related?

d. Suppose some pencil workers switch to jobs in the growing computer industry. On the side-by-side diagrams from part (c), show how this change affects the equilibrium wage and quantity of labor for both the pencil market and for Leadbelly. How does this change affect the marginal product of labor at Leadbelly?

 

8. During the 1980s, 1990s, and the first decade of the 21st century, the United States experienced a significant inflow of capital from abroad. For example, Toyota, BMW, and other foreign car companies built auto plants in the United States. a. Using a diagram of the U.S. capital market, show the effect of this inflow on the rental price of capital in the United States and on the quantity of capital in use. b. Using a diagram of the U.S. labor market, show the effect of the capital inflow on the average wage paid to U.S. workers.

 

9. Policymakers sometimes propose laws requiring firms to give workers certain fringe benefits, such as health insurance or paid parental leave. Let’s consider the effects of such a policy on the labor market.

a. Suppose that a law required firms to give each worker $3 of fringe benefits for every hour that the worker is employed by the firm. How does this law affect the marginal profit that a firm earns from each worker at a given cash wage? How does the law affect the demand curve for labor? Draw.

b. If there is no change in labor supply, how would this law affect employment and wages?

c. Why might the labor-supply curve shift in responseto this law? Would this shift in labor supply raiseor lower the impact of the law on wages andemployment?

d. As discussed in Chapter 6, the wages of some workers, particularly the unskilled and inexperienced, are kept above the equilibrium level by minimum-wage laws. What effect would a fringe-benefit mandate have for these workers?