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Do you have a job during the school year? 1.No. 2.Yes, less than 10 hours per week. 3.Yes, between 10 and 20 hours per week. 4.Yes, 20 or more hours per week.
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If the average value product of labor is greater than the wage, a firm can increase its profits by hiring more labor. 1.True 2.False
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With 4 workers, Avg Val Product is $90. That exceeds the wage. Will profits increase from hiring a fourth worker? No. See table. workersv.outputAVPProfits 1$200 $175 2$300$150$250 3$350$116.66$275 4$360$90$260 Example: Wage is $25
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A profit maximizing firm will choose the amount of labor that maximizes the marginal value product of labor. 1.True 2.False
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To maximize Marginal Value Product hire 1 To maximize profits, hire 3. What does Marginal value product rule say? Hire additional labor so long as marginal value product exceeds the wage. workersv.outputMVPProfits 1$200 $175 2$300$100$250 3$350$50$275 4$360$10$260 Example: Wage is $25
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Example: Wage is $25. To maximize marginal value product hire 1. To maximize profits, hire 3. What does Marginal value product rule say? workersv.outputMVPProfits 1$200 $175 2$300$100$250 3$350$50$275 4$360$10$260
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If this firm maximizes profits by hiring 3 workers, the wage must be between: Number workers. Value of output. 1$200 2$240 3$300 4$340 5$350 1.$40 and $60 2.$85 and $120 3.$60 and $100 4.$60 and $80 5.$100 and $113.33
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Why is this? According to the marginal profit rule, Firm should add workers so long as marginal value product of labor exceeds wage. Marginal value product of third laborer is $60, marginal value product of 4 th is $40. If wage is between $40 and $60, it pays to add third laborer, but not a 4 th.
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And on to our lecture…
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