Part 1: Problems and Applications
1. Suppose that the president proposes a new law aimed at reducing healthcare costs: All Americans are re-quired to eat one apple daily.
a. How would this apple-a-day law affect the de¬mand and equilibrium price of apples?
b. How would the law affect the marginal product and the value of the marginal product of apple pickers?
c. How would the law affect the demand and equilib¬rium wage for apple pickers?
2. Show the effect of each of the following events on the market for labor in the computer manufacturing industry
a. Congress buys personal computers for all U.S. college students.
b. More college students major in engineering and computer science.
c. Computer firms build new manufacturing plants.
3. Suppose that labor is the only input used by a perfectly competitive firm. The firm's production function is as follows:
|
Days of Labor
|
Units of Output
|
|
0 days
|
0 units
|
|
1
|
7
|
|
2
|
13
|
|
3
|
19
|
|
4
|
25
|
|
5
|
28
|
|
6
|
29
|
|
7
|
29
|
a. Calculate the marginal product for each additional worker.
b. Each unit of output sells for $10. Calculate the value of the marginal product of each worker.
c. Compute the demand schedule showing the number of workers hired for all wages from zero to $100 a day.
d. Graph the firm's demand curve.
e. What happens to this demand curve if the price of output rises from $10 to $12 per unit?
4. Smiling Cow Dairy can sell all the milk it wants for $4 a gallon, and it can rent all the robots it wants to milk the cows at a capital rental price of $100 a day. It faces the following production schedule:
|
Number of Robots
|
Total Product
|
|
0
|
0 gallons
|
|
1
|
50
|
|
2
|
85
|
|
3
|
115
|
|
4
|
140
|
|
5
|
150
|
|
6
|
155
|
a. In what kind of market structure does the firm sell its output? How can you tell?
b. In what kind of market structure does the firm rent robots? How can you tell?
c. Calculate the marginal product and the value of the marginal product for each additional robot.
d. How many robots should the firm rent? Explain.
Part 2: If the population of the United States suddenly grew because of a large wave of immigration, what would happen to wages? What would happen to the rents earned by owners of land and capital? Provide specific examples to support your answers.