Short free-response question
Workers or machines?
- Unit 5
- 5 points
- About 12 minutes
You can use a calculator on this question, just like on exam day.
A shorter question with a few lettered parts on one situation, often built on a table, a payoff matrix or a given or described graph. You make claims, explain them, calculate a value, or describe a labeled graph and show a change on it. On the exam: Questions 2 and 3 of 3 in Section II; 5 points each, a quarter of the section score each. About 12 minutes suggested for each. Four-function calculator allowed.
The question
A firm sells its product in a perfectly competitive market for $2 per unit. It hires labor and rents capital in perfectly competitive factor markets: the wage is $20 per hour and the rental price of capital is $40 per hour. At its current mix of inputs, the marginal product of the last hour of labor is 60 units, and the marginal product of the last hour of capital is 100 units.
Suggested time: 12 minutes
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Part (a)
1 pointCalculate the marginal product per dollar of labor. Show your work.
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Part (b)
1 pointIs the firm producing its current output at the lowest possible cost? If not, identify which input it should use more of. Explain.
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Part (c)
1 pointCalculate the marginal revenue product of the last hour of labor. Show your work.
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Part (d)
1 pointIs the firm hiring the profit-maximizing quantity of labor? If not, identify whether it should hire more or less labor. Explain.
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Part (e)
1 pointCalculate the marginal product of labor at which the firm will stop hiring labor, assuming the price of its product and the wage do not change. Show your work.
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