Reference no: EM1344811
Suppose a freeze destroys part of the Florida orange crop.
a. Elucidate what happens to the price of oranges and the marginal product of orange pickers as a result of the freeze. Can you say what happens to the demand for orange pickers? Why or why not?
b. Suppose the price of oranges doubles and the marginal product falls by 30 percent. What happens to the equilibrium wage of orange pickers?
Suppose the price of oranges rises by 30 percent and the marginal product falls by 50 percent. What happens to the equilibrium wage of orange pickers?
Leadbelly Co. sells pencils in a perfectly competitive product market and hires workers in a perfectly competitive labor market. Assume that the market wage rate for workers is $150 per day.
a. What rule should Leadbelly follow to hire the profit-maximizing amount of labor?
b. At the profit-maximizing level of output, the marginal product of the last worker hired is 30 boxes of pencils per day. Calculate the price of a box of pencils.
c. Draw a diagram of the labor market for pencil workers next to a diagram of the labor supply and demand for Leadbelly Co. Label the equilibrium wage and quantity of labor both the market and the firm. How are these diagrams related?
d. Suppose some pencil workers switch to jobs in the growing computer industry. On the side-by-side diagrams from part (c), show how this change affects the equilibrium wage and quantity of labor for both he pencil market and for Leadbelly. How does this change affect the marginal product of labor at Leadbelly?
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