econs

Use your table on the exam sheet to answer the following questions:

1. How many workers will the firm hire to maximize profits?
2. What are the maximum profits?
3. Explain why the firm doesn’t hire one less worker as well as why the firm doesn’t hire one more worker

   Draw a production function diagram in the indicated area on your exam sheet, making sure you label the diagram completely including this initial point as Point A.

   NOTE: You will be adding a Point B to this diagram later in this part of the exam.

    

   
   5.

   Draw a supply curve on your exam sheet in the indicated area. Locate Point A consistent with your Points A above. To get a second point on this original supply curve, pretend that prices go up to $4 and map out the change in the profit maximizing output, like we did in the lectures. This will give us our original supply curve.

   NOTE: You will be adding a point B to this diagram later in this part of the exam.

    

   
   6.

   Suppose, due to a technological innovation, the marginal product of each worker rises by two. At the same time, due to tight labor markets, the wages that you must pay rise to $120 per day. Additionally, preferences for your product rise and thus prices rise to $5.00. Given these new conditions, on a piece of scrap paper, fill in a table like the following. The current wage is $120 and the price of output (Q) is equal to $5.00.

   NOTE: You will not need to submit this table, but it will help you answer the following THREE questions.

   Exam 1 Table 2

   L	Q	MPL	MRP	Marginal Profit	Total Profit
   0	0	—	—	—	0
   1
   2
   3
   4
   5
   6

   1. How many workers will you hire to maximize profits?
   2. What are the maximum profits?
   3. Why did the firm change their behavior given the changes above? Be sure to compare the profit if these changes occurred and the firm did not change their labor input to the profit of the firm when they act as a profit maximizer.

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   7.

   1. Now show these results on the W/MRP Labor Market diagram on your exam sheet labeling the new equilibrium point as Point B.
   2. Show these results on your Production Function diagram on your exam sheet being sure to label everything including Point B.
   3. Show these results on your Supply diagram on your exam sheet, being sure to label Point B.

   NOTE: Be sure to label everything completely. Use colors if possible.