Labor Problems Chapter 3

Assume that for the last worker hired, MPE = 6, p = $2, and w = $10. If one more worker is hired, then MPE = 4, p = $2, and w = $10. The implication is what?

A competitive firm should leave employment unchanged.

The scale effect refers to:

firms wanting to produce more output when a factor price falls.

The marginal product of labor:

(all of these) -initially increases with the quantity of labor because of specialization. -diminishes after the inflection point on the total product curve. -is the slope of the short-run production function. -eventually diminishes as the capital stock is fixed.

Labor demand is more elastic

(all of these) -the greater is the supply elasticity of capital. -the greater is the elasticity of substitution between labor and capital. -the greater is the elasticity of demand for the firm's output. -the greater is labor's share in total costs.

What is an example of the substitution effect?

The firm hires more labor when the wage falls because labor has become relatively cheaper compared to the price of other factors of production.

What is the marginal productivity condition of a profit-maximizing firm?

The firm should produce up to the point where the cost of producing an additional unit of output is equal to the revenue from selling an additional unit of output.

If the firm's elasticity of labor demand for minimum wage workers is -0.25 and the minimum wage increases from $6.25 to $6.75, how will the firm respond?

The firm will hire 2 percent fewer minimum wage workers.

At what point should a firm stop hiring workers?

When the firm's marginal profit from hiring an additional worker equals the cost of hiring that worker.

The average product of labor:

increases when the marginal product of labor is above the average product and equals output per worker.

In a competitive industry, the profit-maximizing amount of labor occurs where:

marginal cost equals marginal revenue and the value of the marginal product of labor intersects the labor supply curve.

The short-run production function typically:

shows the relationship between the level of output produced and the number of employee-hours hired, all else equal.

In the long run, a firm hires labor and capital such that all of the following hold except:

the firm minimizes its factor payments.

In the area of diminishing returns in production:

the marginal product of labor decreases.

In the short run, the demand for labor for a competitive firm is:

the value of the marginal product of labor curve.

The cost of producing a given level of output is minimized:

where the ratio of input prices equals the marginal rate of technical substitution.