Karylle V.

Macalood Economic Development

1BSA5-ABM

Question for Reveiw:

1. Answer for each of the following questions about the labor market?
a. Which economic decision makers determine the demand for labor? What
is their goal, and what decision criteria do they use in trying to reach that
goal?
The economic decision makers determine the demand for
labor is the demand for a firm’s output. The goal of the demand
for a firm’s output is how much output will they supply, to
maximize profits. The criteria they use in trying to reach that goal
is the consumer’s demand for the firm’s product and the firm’s
costs of production.

b. Which economic decision makers determine the supply of labor? What is

their goal, and what decision criteria do they use in trying to reach that
goal?
The economic decision makers determine the supply of
labor is internal decision makers and the external decision makers.
The goal of the internal and external decision makers they are
attempt to predict future cash flow. The criteria they are using is
for the financial reporting is to provide helpful information to
those trying to predict cash flows.

c. In what sense is the demand for labor a derived demand?

The sense of the demand for labor a derived demand is it
depends on demand for the product the worker is producing.

2. How is the demand for lumber affected by the demand for housing?
The demand for lumber has been affected by the demand for
housing, so anyone planning to build a house will end up spending
significantly more due to the lumber shortage.
3. Explain why the market supply curve of a resource slopes upward.
A supply curve is an upward sloping line that represents the
quantity of goods produced and sold by suppliers. A supply curve slopes
upward primarily because of the profit motive: when the market price of
a specific good rises due to an increase in demand, firms respond by
increasing their output.

4. Distinguish between how the market reacts to a temporary difference in

prices for the same resource and how the market reacts to a permanent
difference for similar resources. Why do the reactions differ?
Temporary price difference: A temporary price difference causes
resources to be reallocated from a low-paying industry to a high-paying
industry. This will bring the price down across the board. Permanent
price difference: Permanent price difference does not result in resource
reallocation.

5. On-the-job experience typically enhances a person’s productivity in that

additional experience has no relevance for the other jobs, does this higher
salary reflect an increase in opportunity cost or in economic rent?
Economic rent is the additional payment made to factors of
production in addition to the actual payment made to factors of
production in order to keep the resource in use. In other words, economic
rent is the surplus of a resource's earnings over its opportunity cost. A
worker's experience above a certain level is only used for a specific
profession. As a result, the additional experience comes at no cost in terms
of opportunity. The ability to perform a specific profession is innate in a
person. The income is based on the individual's experience, so it is
economic rent.

6. How does the law of diminishing marginal returns affect a firm’s demand for
labor?
The marginal cost of producing an additional unit of output is
related to the marginal productivity of labor. According to the law of
 diminishing returns, marginal cost rises as output rises. Rising marginal
cost will eventually lead to an increase in average total cost.

7. Many countries are predominantly agricultural. How would changes in the

supply of fertilizer affect the marginal product, and thus the income, of
farmers in such countries?
Farmers' earnings are reduced as a result of fertilizer use.
Fertilizer enables farmers to produce more agricultural items with the
same resources, thereby increasing productivity. Initially, as a farmer's
opportunities expand, so does his or her income. Fertilizers increase
agricultural production, resulting in an agricultural supply that exceeds
demand. As a result, as the price of agricultural products falls, the
farmer's revenue decreases.

8. Explain the rule for determining optimal resource use when a firm employs
more than one resource.
Marginal Product Revenue>Marginal Factor Cost Firms add
marginal factor cost until it equals marginal revenue product.
Substitutable resources in manufacturing When the price of one resource
rises, so does the demand for the other. Resources that boost each others
productivity. When the price of one resource falls, the demand for the
other rises.

9. Use the following data to answer the questions below. Assume a perfectly
competitive product market.
Units of Labor Total Output per Hour MRP
0 0 0
1 7 21
2 13 18
3 18 15
4 22 12
5 25 9
 a. Calculate the marginal revenue product for each additional unit of labor
if output sells for $3 per unit.
MRP = TP/ L
(1) (2) (3) (4) (5) (6)
Units of Total Marginal Product Total Marginal
Labor Output per Product Price Revenue Revenue
Hour (5)=(2)x(4) Product
(6)=(3)x(4)
0 0 0 $3 0 0
1 7 7 3 21 21
2 13 6 3 39 18
3 18 5 3 54 15
4 22 4 3 66 12
5 25 3 3 75 9

b. Draw the demand curve for labor based on the above data and the $3-
per-unit product price.
 c. If the wage rate is $15 per hour, how much labor will be hired?
If the wage rate is $15 per hour the labor will be hired is 3.

d. What would happen to your answers part (b) and (c) if the price output
increased to $5 per unit, other things constant?
My answer will change because the price per unit increased.

10. If a competitive firm hires another full-time worker, total output increases
from 100 units to 110 units per week. Suppose the market price of output is
$25 per unit. What is the maximum weekly wage at which the firm would
hire that additional worker?
The worker's weekly salary would be capped at $250. In general,
the marginal revenue is the demand for labor, and the firm's output has
increased to 110 as a result of newly hired full-time employees.