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Calculating for Utility and Marginality

Please help with the following questions.

1. Discuss two factors that would increase demand for labor. (Hint: Recall that the demand for factors of production or resources is called a derived demand)

2. If the market price of the good or service that a firm produces increases, what happen to the demand of labor? Explain.

3. (a)Take a look at the numerical example on page 76 of the online text http://www.inflateyourmind.com/pdfs/microeconomics.pdf What would be the marginal production at a level of 20 workers? Calculate. What can be said about the total production of cars as more workers are added?

b. Using you answer from (a) and using the information below:
1. Each worker costs the firm $4,000 per month.
2. Each acre of land costs the firm $1,000 per month.
3. Each machine costs the firm $600 per month.

-Each worker costs the firm $4,000 per month.
-Price of the output (car) is $20,000
Should the firm move from the 15th to the 20th worker? In other words, should the firm hire 20 workers. Why? (Hint: You need to calculate the cost of total workers and the marginal revenue product (MRP = price of output * marginal product of labor)).

Solution Preview

1. Cost of labour (i.e. wage) and selling price of the good. An increase of selling price of a decrease of wage can both increase the demand for labour.

2. If selling price increases, the marginal revenue of the company will increase. This means that if the company sells one additional unit, it can earn more revenue. We assume that the company is currently at the equilibrium point, ...

Solution Summary

The solution assists with calculating for utility and marginality.