Tom and Mary own a perfectly competitive tomato farm. They can ...

[09madisonrousseau09]

Tom and Mary own a perfectly competitive tomato farm. They can hire different numbers of college students to help plant, cultivate, and harvest the tomatoes. The above table gives their marginal product schedule.
 
  a) If the price of a pound of tomatoes is 2 a pound, complete the first value of marginal product column in the table. If Tom and Mary must pay their workers 10 an hour, how many workers do they hire? b) If the price of a pound of tomatoes falls to 1 a pound, complete the second value of marginal product column in the table. If Tom and Mary still must pay their workers 10 an hour, how many workers do they hire? c) When the price of a pound of tomatoes falls, what happens to Tom and Mary's demand for labor curve?

Question 2

Suppose an economics forecaster discovers that on days when the sunspot count is high stock market on the following day is bullish, that is stock market prices edge upwards.
 
  In addition, he also observes that on days with a low sunspot count the following day the stock market tends to be bearish, that is stock market prices tend to fall. The forecaster then concludes that there is a positive relationship between the sunspot count and stock market prices and proceeds to base his investment decisions on this premise. What kind of an error has this forecaster made?

[sierrahalpin]

Answer to Question 1

Quantity of labor
(workers) Marginal product
(pounds per hour) Value of marginal product, 2 per pound
(dollars) Value of marginal product, 1 per pound
(dollars)
1 8 16 8
2 10 20 10
3 7 14 7
4 5 10 5
5 4 8 4

a) The completed table is above. Tom and Mary hire 4 workers because that is the number of workers that sets the value of marginal product equal to the wage rate.
b) The completed table is above. Tom and Mary hire 2 workers because that is the number of workers that sets the value of marginal product equal to the wage rate.
c) When the price of a pound of tomatoes falls, Tom and Mary's demand for labor decreases and their demand for labor curve shifts leftward.

Answer to Question 2

The forecaster has fallen into the post hoc fallacy. Simply because one set of events precedes another is not enough to say that one is the cause of the other.

[09madisonrousseau09]

Correct answers!

[sierrahalpin]

Great! Please up vote