con L11 Markets for the factors of production
Pick an economic news within this week and discuss with the class.
1. Henry Ford once said: “It is not the employer who pays wages-he only handles the money. It is the product that pays wages.” Explain.
2. Your enterprising uncle opens a curry puff shop that employs 7 people. The employees are paid $6 per hour, and a curry puff sells for $1. If your uncle is maximizing his profit, what is the value of marginal product of the last worker he hired? What is that worker’s marginal product?
3. Suppose a heavy rainfall in Malaysia destroys part of the country’s durian harvest.
a. Explain what happens to the price of durians and the marginal product of durian pickers as a result of the freeze. Can you say what happens to the demand for durian pickers? Why or why not?
b. Suppose the price of durians doubles and the marginal product falls by 30 percent. What happens to the equilibrium wage of durian pickers?
c. Suppose the price of durians rises by 30 percent and the marginal product falls by 50 percent. What happens to the equilibrium wage of durian pickers?
4. Suppose that labor is the only input used by a perfectly competitive firm that can hire workers for $50 per day. The firm’s production function is as follows:
Day of Labor | Units of Output |
0 | 0 |
1 | 7 |
2 | 13 |
3 | 19 |
4 | 25 |
5 | 28 |
6 | 29 |
Each unit of output sells for $10. Plot the firm’s demand for labor. How many days of labor should the firm hire? Show this point on your graph.