This topic contains a solution. Click here to go to the answer

Author Question: We showed above that a profit-maximizing firm will hire the number of workers such that the wage is ... (Read 134 times)

asan beg

  • Hero Member
  • *****
  • Posts: 570
We showed above that a profit-maximizing firm will hire the number of workers such that the wage is equal to the value of the marginal product of labor.
 
  But, as the text showed in an earlier chapter, a profit-maximizing firm will produce the quantity of output such that price equals marginal cost. Are these two rules inconsistent?

Question 2

Which of the following will not occur as the result of a decrease in net taxes?
 
  A) a shift to the left of the supply curve for loanable funds
  B) decreased government saving
  C) decreased household saving
  D) all of the above



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

mammy1697

  • Sr. Member
  • ****
  • Posts: 341
Answer to Question 1

No. To see this let p = price of output, MPL = marginal product of labor, w = wage rate, VMPL = value of the marginal product of labor, and MC = marginal cost. To see that there is no inconsistency, note the following:
i. Firms maximize profits by producing the level of output such that price equals marginal cost and therefore p = MC.
ii. Firms maximize profits by hiring the number of workers such the wage rate equals the value of the marginal product of labor and therefore w = VMPL.
iii. By definition the value of the marginal product equals the price of output times the marginal product of labor and therefore w = p x MPL, which implies p = w / MPL
iv. MC must equal w / MPL. If a firm wants to produce one more unit of output it would need to hire 1 / MPL additional workers. So, for example, if the MPL is 2 then a firm would have to hire half an additional worker to produce one more unit of output. The cost of these additional workers is w / MPL, which is the cost of producing one more unit of output.
v. Therefore if a firm follows the w = VMPL rule in its hiring decision it will also follow the p = MC rule in its output decision.

Answer to Question 2

C




asan beg

  • Member
  • Posts: 570
Reply 2 on: Jun 29, 2018
Wow, this really help


vickybb89

  • Member
  • Posts: 347
Reply 3 on: Yesterday
YES! Correct, THANKS for helping me on my review

 

Did you know?

Pregnant women usually experience a heightened sense of smell beginning late in the first trimester. Some experts call this the body's way of protecting a pregnant woman from foods that are unsafe for the fetus.

Did you know?

Individuals are never “cured” of addictions. Instead, they learn how to manage their disease to lead healthy, balanced lives.

Did you know?

People often find it difficult to accept the idea that bacteria can be beneficial and improve health. Lactic acid bacteria are good, and when eaten, these bacteria improve health and increase longevity. These bacteria included in foods such as yogurt.

Did you know?

Certain rare plants containing cyanide include apricot pits and a type of potato called cassava. Fortunately, only chronic or massive ingestion of any of these plants can lead to serious poisoning.

Did you know?

Barbituric acid, the base material of barbiturates, was first synthesized in 1863 by Adolph von Bayer. His company later went on to synthesize aspirin for the first time, and Bayer aspirin is still a popular brand today.

For a complete list of videos, visit our video library