Home > Microeconomics > Practice Problem on Markets for Factors of Production

Practice Problem on Markets for Factors of Production

Workers Output MPL VMPL Wage

Marginal Profit

0

 0

1

100 $1,000 $500 $500
2 80 $ 800

$500

3

60 $500

$100

4 280 $ 400

$500

5 20 $500
  • What is the market price of the final good?
  • When does increasing marginal product occur?
  • If the firm hires two workers, how much do the two workers together produce?
  • What is the marginal product of the fourth worker?
  • What property is exemplified by the fact that the marginal product falls as the number of workers increases?
  • The fact that the production function exhibits diminishing marginal productivity implies that total production ______________ (decreases or increases?) beyond a certain level of output.
  • What is the marginal profit of the fourth worker?
  • What is the fourth worker’s contribution to total revenue?
  • To maximize its profit, how many workers will the firm hire?
  • To maximize its profit, the firm will hire workers as long as the value of the marginal product of labor equals or exceeds $___?
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Categories: Microeconomics
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