Why does a firm maximize its profits by hiring so that VMP = W?
What will be an ideal response?
The VMP represents the additional revenue generated by the last worker. The wage is the cost of the last worker. If VMP > W, then an additional worker adds more to revenue than to cost and so hiring the worker boosts the firm's profit. Conversely, if VMP < W, then decreasing labor reduces costs more than it reduces revenue and thereby decreasing the quantity of labor it employs raises the firm's profit. Only when VMP = W can no other level of labor create a greater profit.
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Even though this is a historic moment what do the figures still demonstrate about the elasticity of demand for gasoline? If the price increases go unabated what is likely to happen to the long-run price elasticity for gasoline and why?
If the multiplier is 5, the marginal propensity to consume must be 0.8
Indicate whether the statement is true or false