Question

1. Trans-Fat Corp. is setting up a small Twonky factory in Albany. Table 1 shows the hourly output in Twonkies associated with each level of employment. Worker TT 2 3 4 5 6 7 8 9 T 10|11|12 Output 511 1826 35435056 61656870 Table 1 a.) Tabulate and plot the marginal productivity and average productivity b.) If a Twonky retails for $2 each. How many workers would the firm hire c.)Plot out the short run labor demand curve for the factory for wages d.) What is the elasticity of short-run labor demand for wages close to$12/hr.? of labor curves for the factory if the wage was S12/hr between S4 and $20/hr e.) Suppose the price of Twonkies increases to S3. How many do they hire now. f.) Suppose instead that the firm is considering expanding the factory so that output at every level of employment is twice as high. How many workers would they hire at S12/hr 2. What are the short- and long-run effects on the amount of labor a firm hires if there is a permanent decrease in its output price? Explain each step in your analysis. (You do not need to provide analysis using isoquants, just use what we did in class to think about the long-run impact of the change.)

e f and 2 only everything else I have I need these three questions

Answer 1

a)

(b) Suppose the wage rate is $ w per labor, firm hires at the level of labor where value of marginal product = cost of marginal product

That is, MP*2 = w

(c)

(d)

Elasticity of labor demand = Percentage change in labor demand/ Percentage change in wage rate

At w = 12, e = [(2-1)/(12-5)]*(12/2) = 12/14 = 6/7

At w between 4 and 20, e = [(12-5)/(4-18)]*4/12 = 28/144 = 7/36