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Problems dealing with

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Problems dealing with Factor Markets: A review Why are some basketball players paid more than brain surgeons? -Explain using the concept of marginal revenue project. – PowerPoint PPT presentation

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Title: Problems dealing with


1
Problems dealing with
  • Factor Markets
  • A review

2
Why are some basketball players paid more than
brain surgeons?-Explain using the concept of
marginal revenue project.
3
Why are some basketball players paid more than
brain surgeons?-Explain using the concept of
marginal revenue project.
  • A professional basketball team will pay for a
    player until MRPMRC. A star player can generate
    a lot of extra revenue for a team, increasing
    demand for ticket seats at games as well as
    demand by advertisers for air time of radio tv
    broadcasts
  • People place a high value on brain surgeons but
    not in comparison to the availability of brain
    surgeons
  • A lot more people place a high value on watching
    star basketball players relative to the number of
    stars

4
2. True, false or uncertain, and explain why?
If it were not for unions pushing up wages,
wed all be working 60 hours a week for 100 a
month, just like people did a century ago, or do
today in developing economies.
5
2. True, false or uncertain, and explain why?
If it were not for unions pushing up wages,
wed all be working 60 hours a week for 100 a
month, just like people did a century ago, or do
today in developing economies.
  • FALSE
  • Although unions may raise the wages of members,
    the biggest factor in increasing real wages is
    productivity. Increases in real wages depend on
    increases in real output. Unions may have been
    responsible for social legislation, but
    increasing MRP is much more important.

6
3. Use a graph to explain why firms, that want to
maximize profits, use a resource until the
marginal revenue product of this resource equals
the marginal resource cost.
7
3. Use a graph to explain why firms, that want to
maximize profits, use a resource until the
marginal revenue product of this resource equals
the marginal resource cost.
  • as long as TR increases and does exceed TC the
    firm will improve its profits by hiring more of
    the resource

SMRC
Wage
Input REVENUE and COST
DMRP
Q
QUANTITY OF LABOR
8
4. True, false or uncertain, and explain
why? American workers who are paid 10 an hour,
cannot possibly compete with workers who are paid
1 an hour in developing countries
9
4. True, false or uncertain, and explain
why? American workers who are paid 10 an hour,
cannot possibly compete with workers who are paid
1 an hour in developing countries
  • FALSE
  • Some American workers still have jobs and are
    paid more than 10 an hour (lol)
  • Americans are paid more because their
    productivity is higher. Increases in real wages
    depend on increases in real output.

10
5. Why might a university pay a Nobel
Prize-winning faculty member more than its
president?Does this make economic sense for the
university?
11
5. Why might a university pay a Nobel
Prize-winning faculty member more than its
president?Does this make economic sense for the
university?
  • The Nobel Laureate increases the reputation of
    the university, and may attract more students,
    increasing revenue. Therefore because the MRP of
    the professor may be greater than the MRP of the
    president the wage rate of the professor would be
    greater.

12
6. What are the effects of a minimum wage that is
above the equilibrium wage in a perfectly
competitive market? What about a market in which
the employer is monopsonistic? Give an example
of a relatively competitive labor market, and a
less competitive labor market.
13
6. What are the effects of a minimum wage that is
above the equilibrium wage in a perfectly
competitive market? What about a market in which
the employer is monopsonistic? Give an example
of a relatively competitive labor market, and a
less competitive labor market.
  • In a monopsonistic labor market, a minimum wage
    may increase both wage and employment up to the
    equilibrium point of the competitive market,
    after which wage only would rise while employment
    remains constant at the Qm amount of labor
  • The NYC MTA subway
  • A small town newspaper
  • In a competitive labor market, a minimum wage
    increases quantity supplied and decreases
    quantity demanded
  • Most any industry is an example of a competitive
    labor market

14
7. The National Collegiate Athletic Assn. (NCAA)
regulates all college athletics in the United
States. It sets the amount of scholarships, the
number of scholarships granted, and regulations
for recruiting athletes. The NCAA has hundreds
of rules regulating intercollegiate athletics.
  • (7a) What effect do these regulations have on
    who receives the economic rent from college
    athletics?

15
7. The National Collegiate Athletic Assn. (NCAA)
regulates all college athletics in the United
States. It sets the amount of scholarships, the
number of scholarships granted, and regulations
for recruiting athletes. The NCAA has hundreds
of rules regulating intercollegiate athletics.
  • (7a) What effect do these regulations have on
    who receives the economic rent from college
    athletics?
  • They set the level of athletes benefits and
    salaries so the universities receive the economic
    rent.

16
7. The National Collegiate Athletic Assn. (NCAA)
regulates all college athletics in the United
States. It sets the amount of scholarships, the
number of scholarships granted, and regulations
for recruiting athletes. The NCAA has hundreds
of rules regulating intercollegiate athletics.
  • (7b) Which colleges have greater incentive to
    cheat? Why?

17
7. The National Collegiate Athletic Assn. (NCAA)
regulates all college athletics in the United
States. It sets the amount of scholarships, the
number of scholarships granted, and regulations
for recruiting athletes. The NCAA has hundreds
of rules regulating intercollegiate athletics.
  • (7b) Which colleges have greater incentive to
    cheat? Why?
  • Colleges that do not have national academic
    prestige
  • Colleges that have big arenas or stadiums that
    they need to fill
  • A star athlete can increase the universitys MRP
    a lot

18
7. The National Collegiate Athletic Assn. (NCAA)
regulates all college athletics in the United
States. It sets the amount of scholarships, the
number of scholarships granted, and regulations
for recruiting athletes. The NCAA has hundreds
of rules regulating intercollegiate athletics.
  • (7c) Who would gain if the NCAA could no longer
    set rules for college athletics? Why?

19
7. The National Collegiate Athletic Assn. (NCAA)
regulates all college athletics in the United
States. It sets the amount of scholarships, the
number of scholarships granted, and regulations
for recruiting athletes. The NCAA has hundreds
of rules regulating intercollegiate athletics.
  • Players in major-revenue sports would be helped
  • Probably star athletes who would receive higher
    salaries and not just standard scholarships.
  • (7c) Who would gain if the NCAA could no longer
    set rules for college athletics? Why?

20
7. The National Collegiate Athletic Assn. (NCAA)
regulates all college athletics in the United
States. It sets the amount of scholarships, the
number of scholarships granted, and regulations
for recruiting athletes. The NCAA has hundreds
of rules regulating intercollegiate athletics.
  • (7d) Who would lose if the NCAA could no longer
    control college athletics? Why?

21
7. The National Collegiate Athletic Assn. (NCAA)
regulates all college athletics in the United
States. It sets the amount of scholarships, the
number of scholarships granted, and regulations
for recruiting athletes. The NCAA has hundreds
of rules regulating intercollegiate athletics.
  • (7d) Who would lose if the NCAA could no longer
    control college athletics? Why?
  • The universities, they would have to pay a wage
    determined by supply and demand
  • Players in low-revenue sports would be hurt

22
7. The National Collegiate Athletic Assn. (NCAA)
regulates all college athletics in the United
States. It sets the amount of scholarships, the
number of scholarships granted, and regulations
for recruiting athletes. The NCAA has hundreds
of rules regulating intercollegiate athletics.
  • (7e) True, false or uncertain and why?
  • The NCAA is a champion for amateur athletics,
    and its rules protect the rights of college
    athletes.

23
7. The National Collegiate Athletic Assn. (NCAA)
regulates all college athletics in the United
States. It sets the amount of scholarships, the
number of scholarships granted, and regulations
for recruiting athletes. The NCAA has hundreds
of rules regulating intercollegiate athletics.
  • (7e) True, false or uncertain and why?
  • The NCAA is a champion for amateur athletics,
    and its rules protect the rights of college
    athletes.
  • Uncertain
  • A case can be made for the majority of amateur
    athletes who are not in major-revenue sports
  • However, successful athletes in major-revenue
    sports are harmed
  • major collegiate football and basketball programs
    are money makers, and those benefits go to the
    universities, not the amateur athletes

24
8. The table below gives you information about a
firm operating in a competitive product market.
Assume all factors of production are fixed with
the exception of labor. The other factors of
production cost the firm 50 a day, which may be
thought of as a fixed cost. Assume the firm is a
profit maximizer. Assume the firm sells its
product at 3 per unit.
Labor input (workers per day) Total Physical Product (output / day) Marginal Physical Product (?output / day) Marginal Revenue Product (?TR/worker)
0 0
1 22
2 40
3 56
4 70
5 82
6 92
7 100
8 106
25
8. The table below gives you information about a
firm operating in a competitive product market.
Assume all factors of production are fixed with
the exception of labor. The other factors of
production cost the firm 50 a day, which may be
thought of as a fixed cost. Assume the firm is a
profit maximizer. Assume the firm sells its
product at 3 per unit.
Labor input (workers per day) Total Physical Product (output / day) Marginal Physical Product (?output / day) Marginal Revenue Product (?TR/worker)
0 0 - -
1 22 22 66
2 40 18 54
3 56 16 48
4 70 14 42
5 82 12 36
6 92 10 30
7 100 8 24
8 106 6 18
26
8. The table below gives you information about a
firm operating in a competitive product market.
Assume all factors of production are fixed with
the exception of labor. The other factors of
production cost the firm 50 a day, which may be
thought of as a fixed cost. Assume the firm is a
profit maximizer. Assume the firm sells its
product at 3 per unit.
Labor input (workers per day) Total Physical Product (output / day) Marginal Physical Product (?output / day) Marginal Revenue Product ?TR/worker
0 0 - -
1 22 22 66
2 40 18 54
3 56 16 48
4 70 14 42
5 82 12 36
6 92 10 30
7 100 8 24
8 106 6 18
  • If the equilibrium market wage is 36 per day,
    the firm will hire ___ workers per day and
    produce ___ units of output.
  • At this output, the firm will have a total
    revenue of ____ per day and a total cost of ____
    per day.
  • The firm will experience a profit/loss of ___ per
    day.

27
8. The table below gives you information about a
firm operating in a competitive product market.
Assume all factors of production are fixed with
the exception of labor. The other factors of
production cost the firm 50 a day, which may be
thought of as a fixed cost. Assume the firm is a
profit maximizer. Assume the firm sells its
product at 3 per unit.
Labor input (workers per day) Total Physical Product (output / day) Marginal Physical Product (?output / day) Marginal Revenue Product ?TR/worker
0 0 - -
1 22 22 66
2 40 18 54
3 56 16 48
4 70 14 42
5 82 12 36
6 92 10 30
7 100 8 24
8 106 6 18
  • If the equilibrium market wage is 36 per day,
    the firm will hire 5 workers per day and produce
    82 units of output.
  • At this output, the firm will have a total
    revenue of 246 per day and a total cost of 230
    per day.
  • The firm will experience a profit of 16 per day.

28
9. Suppose youre the HR director for a firm that
sells its output in a monopolist market.
  • If you hire an additional worker, output goes up
    by 50 units to 125 units per day. If you want to
    sell the additional 50 units, you must lower your
    price from 3 per unit to 2 per unit. What is
    the maximum wage you would be willing to pay the
    additional worker?

29
9. Suppose youre the HR director for a firm that
sells its output in a monopolist market.
  • If you hire an additional worker, output goes up
    by 50 units to 125 units per day. If you want to
    sell the additional 50 units, you must lower your
    price from 3 per unit to 2 per unit. What is
    the maximum wage you would be willing to pay the
    additional worker?
  • 25
  • TR1 75 x 3 225
  • TR2 125x2 250
  • ?TR 25

30
9b. Suppose you hired the additional worker.
Output now stands at 125 units per day at a
product price of 2 per unit.
  • If you hire an additional worker, output goes up
    by 40 units to 165 units per day. If you want to
    sell the additional 40 units, you must lower your
    price from 2 per unit to 1 per unit. What is
    the maximum wage you would be willing to pay the
    additional worker? Would you hire this
    additional worker?

31
9b. Suppose you hired the additional worker.
Output now stands at 125 units per day at a
product price of 2 per unit.
  • If you hire an additional worker, output goes up
    by 40 units to 165 units per day. If you want to
    sell the additional 40 units, you must lower your
    price from 2 per unit to 1 per unit. What is
    the maximum wage you would be willing to pay the
    additional worker? Would you hire this
    additional worker?
  • 0
  • No, you would not hire the worker nor pay the
    worker a wage because the MRP is negative
  • TR1 125 x 2 250
  • TR2 165 x 1 165
  • ?TR -85

32
Use a graph to explain why the monopsonist will
always hire fewer workers and pay lower wages
than firms operating in competitive labor markets
MRC
S
Wage Rate (resource price)
MRPD
Quantity of labor
33
Use a graph to explain why the monopsonist will
always hire fewer workers and pay lower wages
than firms operating in competitive labor markets
  • Because the monopsonist is the only firm hiring,
    it faces an upward sloping supply curve.
    Therefore each additional worker hired must be
    paid more and it must increase the wages of all
    previous workers, therefore its MRC is above the
    supply curve at each amount of labor
  • The firm hires workers such that MRCMRP but sets
    the wage for these workers at the supply curve
  • The firm wants to pay the lowest wage it can and
    still have an input of Qm workers
  • This is a lower number of workers and a lower
    wage than the competitive firm would pay its
    workers

MRC
S
Wage Rate (resource price)
Wc
Wm
MRPD
Qm
Qc
Quantity of labor
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