Author Question: At any wage rate, the quantity of welders willing to work is less than the quantity of tomato ... (Read 81 times)

mwit1967

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At any wage rate, the quantity of welders willing to work is less than the quantity of tomato pickers. Why?
 
  What will be an ideal response?

Question 2

Why does a profit-maximizing firm hire labor up to the point where the value of marginal product equals the wage rate?
 
  What will be an ideal response?



ghepp

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Answer to Question 1

For the welder the cost of acquiring his or her skill is much higher than the cost incurred by the tomato picker. The cost of learning how to pick fruits and vegetables is so low that the supply of individuals who can do that activity is quite large. Welders must learn their trade on the job and/or through vocational training, which raises the costs of learning this skill and decreases the supply of welders.

Answer to Question 2

If a company stopped adding workers at the point where the wage rate was less than the value of marginal product of labor, the firm could hire more workers and its profit would increase. Why? Because the return from the workers, the value of marginal product, exceeds the cost of hiring the workers. Since the marginal product of labor decreases as more workers are employed, as more workers are added, the marginal product of labor and hence the value of marginal product decreases. Eventually the firm will reach the point at which the value of marginal product equals the wage rate. If still more workers are employed, then the wage the firm must pay the workers exceeds the value of marginal product. These workers would contribute losses to the firm. So only when the value of marginal product equals the wage rate can the firm not increase its profit by changing the quantity of workers it employs.



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