Tom and Mary own a perfectly competitive tomato farm. They can hire different numbers of college students to help plant, cultivate, and harvest the tomatoes. The above table gives their marginal product schedule
a) If the price of a pound of tomatoes is $2 a pound, complete the first value of marginal product column in the table. If Tom and Mary must pay their workers $10 an hour, how many workers do they hire? b) If the price of a pound of tomatoes falls to $1 a pound, complete the second value of marginal product column in the table. If Tom and Mary still must pay their workers $10 an hour, how many workers do they hire? c) When the price of a pound of tomatoes falls, what happens to Tom and Mary's demand for labor curve?
Quantity of labor
(workers) Marginal product
(pounds per hour) Value of marginal product, $2 per pound
(dollars) Value of marginal product, $1 per pound
(dollars)
1 8 16 8
2 10 20 10
3 7 14 7
4 5 10 5
5 4 8 4
a) The completed table is above. Tom and Mary hire 4 workers because that is the number of workers that sets the value of marginal product equal to the wage rate.
b) The completed table is above. Tom and Mary hire 2 workers because that is the number of workers that sets the value of marginal product equal to the wage rate.
c) When the price of a pound of tomatoes falls, Tom and Mary's demand for labor decreases and their demand for labor curve shifts leftward.
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If the demand for jelly increases, and the price of grapes (used to make jelly) rises
A) the equilibrium quantity of jelly falls and the equilibrium price of jelly might rise or fall. B) the equilibrium price of jelly falls and the equilibrium quantity of jelly might rise or fall. C) the equilibrium price of jelly rises and the equilibrium quantity of jelly might rise or fall. D) the equilibrium price of jelly falls and the equilibrium quantity of jelly rises.
Refer to Figure 15-11. Suppose the local government imposes a $2.50 per month tax on cable companies. What happens to the price charged by the cable company following the imposition of this tax?
A) The price rises from PM but it increases by an amount greater than $2.50 to reflect the monopoly's markup. B) The price remains at PM. C) The price rises from PM but it increases by an amount less than $2.50. D) The price rises from PM to (PM + $2.50).