Mike’s Mealbarn is a competitive firm in the hot dog stand business. How will each of the following affect the short-run demand for labor at Mike's?
(i) Mike buys a new grill that makes the cooks more productive.
(ii) Increasing numbers of people become vegetarians.
(iii) A health inspector fines Mike $500 for unsanitary conditions, but fortunately Mike's customers don't learn about it.
(i) In this case, labor and capital are complements in production. The increased capital raises labor's marginal product, so the demand for labor increases.
(ii) The demand for hamburgers falls, which lowers the price of hamburgers. This price change causes a fall in labor's marginal revenue product, so the demand for labor decreases.
(iii) The $500 is a sunk cost. Neither the price of Mike's output nor the marginal product of labor have changed, so the short-run demand for labor is unaffected.
You might also like to view...
Refer to Figure 12-20. If the market price is P1, what is the allocatively efficient output level?
A) Q0 B) Q1 C) Q2 D) There is no allocatively efficient output level because the firm is making a loss.
A firm in a competitive price-searcher market can raise its price without losing all of its customers. This is a result of
a. low entry barriers. b. a perfectly elastic market demand. c. the small number of firms in the market. d. product differentiation.