Days of Labor Units of Daily Output Marginal Product of Labor Value of MP of Labor($)
0 0 0 0
1 7 7 70
2 13 6 60
3 19 6 60
4 25 6 60
5 28 3 30
6 29 1 10 The firm should hire four days of work because once they hire 5 days of labor they will no longer be making a profit with each additional day they hire.
2) There are three key factors to production. These are labor, land, and capital. Labor is the hiring of workers, land is the rental or ownership of land, and capital is the rental or ownership of equipment. The returns of labor are an increased work force and the ability to produce more products. The return of land is more area to produce more goods. Finally the return of capital is the increase in the number of goods produced due to having more equipment to produce said goods. The marginal product is the increase in products supplied due to increasing the amount of any of these three factors. Marginal product is determined by finding the marginal product of adding an additional unit of the factor, multiplying that by the price of each unit produced, then subtracting the amount paid for each additional unit of the factor. This will tell you how profitable each increase in unit of a given factor will be.
3) Firms are willing to increase labor and capital to the point that the increase in money paid for either of these will equal the value of that factor’s marginal product. If demand for the final product increased, the firm would increase capital and/or labor just as they did in the previous sentence. The firm would do this to maximize production and profits.
4) Yes, consumers play a large part in labor discrimination. They do this by agreeing to pay the price that is charged for a given service, thereby helping to determine the wage earned. Also, we as a society have deemed what is “desirable” in a job, which also goes into the determination of wages.
5) Diminishing marginal utility is the idea that as a consumer buys more of a product they already have, the less marginal utility each additional item provides. I do not think that it contradicts the idea that individuals always want more goods. It is human nature to want more of what helps us, feeds us, protects us, etc. It all comes down to what we can afford, or budget. Just because an item may have diminishing marginal utility, it doesn’t necessarily mean that’s what drives the consumer to stop buying more.
6) Property 1 is that higher indifference curves are preferred to lower ones. This means that most people want to consume more goods. Property 2 is that indifference curves are downward sloping. This says that in order for the consumer to remain happy, if they must buy less of one good, they must buy more of another to remain equally happy. This happens when the consumer is willing to substitute one good for another. Property 3 states that indifference curves do not cross. This property exists because at the point that both curves would cross, the consumer would be happy with less of both goods which contradicts the statement that consumers want more of both goods.
7) The budget constraint is the ability of a consumer to buy goods based on their income. A consumer maximizes their utility by choosing consumption of goods such that the marginal rate of substitution equals the relative price. Consumers know they are not maximizing utility if they are not maintaining at their optimum based on their budget constraints.
8) Asymmetric information is information one party has that another party does not have that may be beneficial to both parties. One problem that arises is hidden actions and is commonly referred to as moral hazard. This is the tendency of an imperfectly monitored person to engage in dishonest or undesirable behavior. The