Asked by Garima Bhelle on Jul 08, 2024
Verified
Suppose that the labor supply curve for a large university in a small town is given by w 160 0.03L, where L is number of units of labor per week and w is the weekly wage paid per unit of labor.If the university is currently hiring 1,000 units of labor per week, the marginal cost of an additional unit of labor
A) equals the wage rate.
B) is twice the wage rate.
C) equals the wage rate plus $60.
D) equals the wage rate plus $30.
E) equals the wage rate plus $90.
Labor Supply Curve
A graphic representation showing the relationship between the wage rate and the quantity of labor that workers are willing to supply.
Marginal Cost
The extra cost incurred by producing one more unit of a product or service; important in determining the optimal production level.
Weekly Wage
The total of an individual's earnings before taxes and other deductions, received on a weekly basis for labor or services provided.
- Familiarize oneself with the way labor supply curves affect wage levels and labor-related costs.
- Understand the importance of marginal costs in influencing the decision-making tactics of firms with a monopoly.
Verified Answer
dS/dL = 160 + 0.06L
Plugging in L = 1000 (since the university is currently hiring 1000 units of labor per week), we get:
dS/dL = 160 + 0.06(1000) = 220
The marginal cost is equal to the wage rate plus the derivative of the labor supply function:
MC = w + dS/dL
Plugging in w = 160 and dS/dL = 220, we get:
MC = 160 + 220 = 190
Therefore, the marginal cost of an additional unit of labor is $190, which is equal to the wage rate plus $30. So the correct answer is D, "equals the wage rate plus $30".
Learning Objectives
- Familiarize oneself with the way labor supply curves affect wage levels and labor-related costs.
- Understand the importance of marginal costs in influencing the decision-making tactics of firms with a monopoly.
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