Consider the following information on the daily production
QUESTION
I. Input and total product (output); MPP and APP of labor and
MRP. Ch. 23 and 28
Consider the following information on the daily production
function relationship between Labor input and output, called Total Physical
Product of Labor. Assume the firm is a perfect competitor in both the market
for its output and the labor market.
L
TPP = Q
APP
MPP
MRP
MFC
0
0
NA
NA
NA
1
20
2
48
3
72
4
92
5
108
6
120
7
128
a.)Fill in the APP (average
physical product of labor) column. At what level(s) of L input is APP at a
maximum?
b.)Fill in the MPP (marginal
physical product of labor) column. At what level of labor input does
diminishing MP set in? Explain your choice.
c.)If the price of output is $100,
fill in the marginal revenue product of labor (MRP) column.
d.)Now assume that Labor units
cost $1200/day. (i.e., the MFC- marginal factor cost- is $1200/day). How many
workers will this firm hire? Explain your choice.
e.)Now suppose there is an
increase in the demand for the product that this firm produces. Carefully
explain the likely effects on MRP, MFC and the number of workers hired by the
firm.
Find below two tables below depicting two
possibilities for the structure of a new industry. The top table depicts
information for a typical perfectly competitive FIRM. Its output, Q,
is measured in thousands of units and there are 1000 such firms in the industry.
The bottom table depicts a monopoly as the single producer of the same
good. The monopolists output, Q, is measured in millions of units and,
of course, it is the only firm in the industry.
PERFECT COMPETITOR :
Q
P
TR
TC
MC
MR
Profit
0
24
12
NA
NA
1
24
20
2
24
36
3
24
56
4
24
78
5
24
102
6
24
128
7
24
156
8
24
186
MONOPOLIST :
Q
P
TR
TC
MC
MR
Profit
0
44
12
NA
NA
1
40
20
2
36
36
3
32
56
4
28
78
5
24
102
6
20
128
7
16
156
8
12
186
a.) Fill in both tables up through the Profit
column, and report all values on your test canvas.
b.) Using the MR=MC rule, determine the
approximate profit-maximizing output level, the level of maximum profits and
the price to be charged by the Perfectly Competitive FIRM.
Then assume there are 1000 such competitive firms in the industry calculate
what are total INDUSTRY output, profits, and the price charged.
d.) Using the MR=MC rule, determine the
approximate profit-maximizing output level, the level of maximum profits and
the price to be charged by the Monopolist. So what are
the INDUSTRY output, price and profits earned for the monopolist?
e.) Use the industry demand curve (as given in
the monopolist table) to calculate the consumer surplus associated with the
competitive control of the industry; then calculate the consumer surplus
associated with monopolistic control of the industry. Which industry structure
would you recommend if you are a consumer advocate? Explain.
f.) The situation depicted for both industries
above is in the SHORT RUN. How can you tell?
g.) In a concise paragraph, compare these two
industry structures (perfect competition vs. monopoly) on at least four points,
including the market dynamics of what happens to market price, quantity sold
and profits in the LONG RUN.
ANSWER
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