Author Question: How is a competitive firm's demand for labor derived when labor is the firm's only variablefactor of ... (Read 50 times)

arivle123 · **on:** Jun 29, 2018

How is a competitive firm's demand for labor derived when labor is the firm's only variablefactor of production in the short run?

What will be an ideal response?

Question 2

Caithness Energy, a firm that produces renewable energy, runs a wind farm in Ione, Oregon. The families that live close to this farm have complained to the county planning commission about the high noise levels from the wind turbines.

Although the government regulates the amount of noise that is allowed in a town or a city, it is difficult to decide what the appropriate level should be and how it should be measured. Following the complaints, a Caithness representative offered households 5,000 if they agreed not to complain about the noise. Is this consistent with what the Coase theorem predicts would happen? Explain.

milbourne11 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

When labor is the only variable input for a firm in the short run, the firm's demand for labor is the marginal revenue product of labor curve.

Answer to Question 2

Caithness Energy's marginal private costs of producing wind energy do not account for the noise pollution that it generates. The noise that is being produced by the wind farm is an example of a negative externality. In this context, the Coase theorem predicts that Caithness Energy and the families near the farm will negotiate and the end result will be efficient. The fact that a private deal was struck between the company and the families for 5,000 shows that an efficient outcome was achieved regardless of the law. This is consistent with the predictions of the Coase Theorem.
See http://www.nytimes.com/2010/08/01/us/01wind.html