Author Question: What factors other than the wage rate influence the demand for labor? How is demand affected by ... (Read 129 times)

audragclark · **on:** Jun 29, 2018

What factors other than the wage rate influence the demand for labor? How is demand affected by changes in these factors?

What will be an ideal response?

Question 2

Michael Jordan has more athletic ability than most individuals. Thus, he is more productive at most tasks involving physical skill. Explain why then, it is more efficient for Michael Jordan to pay someone else to mow his lawn.

What will be an ideal response?

Question 3

The figure above provides information about Light-U-Up Utilities, which is a natural monopoly that provides electricity. If Light-U-Up is regulated, what is its economic profit if it must follow a marginal cost pricing rule?

A) -40
B) -20
C) 0
D) 30

Chelseyj.hasty · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The demand for labor is influenced by changes in the price of the firm's output, the prices of other factors of production, and technology.
The demand for labor is based on the value of marginal product, which is equal to the marginal product times the price. When the price of the firm's output increases, the value of marginal product increases, making hiring more workers profitable. So when the price of the firm's output increases, so does its demand for labor.
The prices of other factors of production also influence the demand for labor. The different factors of production can be substitutes for each other. For instance, if the price of capital falls relative to the wage rate, a firm will substitute capital for labor, which will decrease the demand for labor. However, if the cheaper capital results in a large increase in production, it is possible that the demand for labor will increase.
Technology can either increase or decrease the demand for labor, depending on whether the technology allows firms to replace workers with capital (which decreases the demand for labor) or makes the labor more productive (which increases the demand for labor).

Answer to Question 2

While Michael Jordan probably has an absolute advantage in mowing his lawn, the opportunity cost of his time is very high. He could spend the time it takes to mow his lawn in a variety of ways including earning a large amount of money making a commercial endorsement. Thus, it is likely that he does not have a comparative advantage in mowing his lawn.

Answer to Question 3

B