The American Whey is a firm that makes American “cheese” in a perfectly competitive market and is earning normal economic profit in the long-run equilibrium. Assume that American cheese producers hire workers from a perfectly competitive labor market.

(i) Draw a graph of labor supply and demand for the market and typical firm with relevant cost and price/revenue curves. Assume the market wage rate increases in order to attract more workers to “whey-ing in” as industry ads have put it.

(ii) Show the effect of the wage increase on the graphs, labeling all changes in the market and firm.

(iii) What will happen to the marginal revenue product of the last worker hired by American Whey? Explain.

(iv) American Whey begins adding capital equipment – “whey” out machines – to offset the costs of labor employing the cost-minimizing combination of inputs. The marginal product of labor is 30 blocks of cheese per worker hour and the wage rate is $15 per hour. The marginal product of the whey machine is 60 blocks per machine- hour. What is the hourly operational price of a machine?

(v) American Whey’s profits have curdled. They have hired you to advise them about what combination of machines and workers would be the most profit maximizing ratio. What do you tell them?

pls I need help

  • Baader [he/him]
    ·
    4 years ago

    My basic economics course was ten years ago, but I think I remember some stuff.

    (i) The Supply goes from buttom left to upper right. The Demand goes from upper left to buttom right. Where these two cross you have the equilibrium price (crosspoint), real wage rate (Y axsis where the two graphs cross) and units of labor (X axisis, where they cross) (ii) When the market wage increases you draw a straight line from a higher point in the Y axsis then the equilibrium. Therefore there woulb be surplus of workers in the market (the part of the straight line between the two graphs). (iii) I guess it would decrease from the equilibrium point in the X axis to where the demand graph crosses the straight line (iv) Don't know, google will tell you (v) I think a combination where the wage is the equilibrium

    I hope you have already realized, all these things have nothing to do with reality. There is no perfect market. Minimum wages do not increase the number of jobless people. It's all a big lie.

      • Baader [he/him]
        ·
        4 years ago

        Of course. There is nothing wrong with knowing the enemy. Just don't let your surroundings fool you into thinking wage work will make you happy. I thought when I reach a certain salery I could built my own heaven. But it doesn't happen. One will never become rich by working.