Question

If part of a firm’s capital stock is wiped out (perhaps from a natural disaster), what...

  1. If part of a firm’s capital stock is wiped out (perhaps from a natural disaster), what happens to the profit maximizing amount of labor demanded? Using the firm’s one period profit maximization graph to derive labor demand and the equilibrium labor market graph, trace out the effect of a natural disaster in the labor market.
Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Considering Capital and Labour as substitutes of each other, when a firm's capital stock is wiped out from a natural disaster then firms tends to increase its labour demand. Profit is maximised when marginal revenue is equal to the Marginal cost of employing a factor of production. As we could see in the graph below E0 is the initial equilibrium where the prices of labour i.e. wage is equal to P0 and quantity demanded is equal to Q0. Now from a natural disaster firm has lost a part of capital stock so the firm will employ more labour. So now the labour demand curve shifts rightwards and E1 is the new equilibrium point where prices have raised up to P1 and the quantity of labour demanded has also increased to Q1.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Suppose that the cost of renting capital increases.  What happens to the profit maximizing amount of labor...
Suppose that the cost of renting capital increases.  What happens to the profit maximizing amount of labor chosen by the firm?  Show using the firm’s optimal choice of labor graph.
Question 81 pts Which of the following would be part of the Keynesian explanation for the...
Question 81 pts Which of the following would be part of the Keynesian explanation for the Great Depression? The economy lacks self correction mechanisms. Income of most Americans didn’t grow fast enough during the 1920s to keep up with production. The stock market crash in 1929 wiped out a large amount of wealth in the U.S. All of the above. Flag this Question Question 91 pts In the Keynesian cross or AE graph the 45-degree line is: all the possible...
Assume that consumers view tax preparation services as undifferentiated among producers, and that there are hundreds...
Assume that consumers view tax preparation services as undifferentiated among producers, and that there are hundreds of companies offering tax preparation in a given market. The current market equilibrium price is $120. Jojo’s Tax Service has a daily, short-run total cost given by TC = 100 + 4Q2. Answer the following questions: How many tax returns should Jojo prepare each day if her goal is to maximize profits? How much will she earn in profit each day? A perfectly competitive...
1) Consider a firm that uses only capital and labor. In the short-run the firm: A....
1) Consider a firm that uses only capital and labor. In the short-run the firm: A. Will never face diminishing returns to labor B. Faces diminishing returns to labor because capital cannot be changed C. Faces increasing returns to labor because capital is variable D.Faces diminishing returns to capital because labor can be changed 2) Tim started a lawn mowing business during summer break using his family's lawn mower, which statement best explains the shape of the production function? A....
Assume that consumers view tax preparation services as undifferentiated among producers, and that there are hundreds...
Assume that consumers view tax preparation services as undifferentiated among producers, and that there are hundreds of companies offering tax preparation in a given market. The current market equilibrium price is $120. Jojo’s Tax Service has a daily, short-run total cost given by TC = 100 + 4Q2. Answer the following questions: How many tax returns should Jojo prepare each day if her goal is to maximize profits? How much will she earn in profit each day? A perfectly competitive...
Consider a one-period closed economy, i.e. agents (consumers, firms and government) live for one period, consumers...
Consider a one-period closed economy, i.e. agents (consumers, firms and government) live for one period, consumers supply labor and demand consumption good, whereas their utility function is in the form of log(C−χN1+ν/1+ν ) (GHH preference). Firms supply consumption good and demand labor and their production function is y = zN^1−α. The government finances an exogenous spending via lump-sum taxes. Suppose there is a positive shock on χ which means the consumers favor leisure (or dislike labor) by much more than...
An income consumption curve shows what happens to the consumer's consumption of good X as nominal...
An income consumption curve shows what happens to the consumer's consumption of good X as nominal income increases and Group of answer choices the price of X falls. the prices of X and Y stay constant. the price of Y falls. real income stays constant. Flag this Question Question 5 5 pts If you were selling a product in a setting where incomes were rapidly rising, which of the 4 Engel curve slopes listed below would you prefer for your...
ECO 101-S70: Final Quiz 2 CHAPTER 3: Demand, Supply and Equilibrium 1. Which of the following...
ECO 101-S70: Final Quiz 2 CHAPTER 3: Demand, Supply and Equilibrium 1. Which of the following could cause a decrease in consumer demand for product X? a.   a decrease in consumer income b.   an increase in the prices of goods which are good substitutes for product X c. an increase in the price which consumers expect will prevail for product X in the future d. a decrease in the supply of product X 2. If two goods are substitutes for...
1. Which is the most accurate definition of the study of economics? [1] Distributing surplus goods...
1. Which is the most accurate definition of the study of economics? [1] Distributing surplus goods to those in need. [2] Dealing with affluence in a morally bankrupt world. [3] Using scarce resources to satisfy unlimited human wants. [4] Reducing human wants to eliminate the problem of scarcity. 2. Computer software represents [1] labour. [2] land. [3] capital. [4] entrepreneurship. 3. Suppose you have graduated with a degree in accounting and are offered a job with an accounting firm. But...
Baldwin Corporation is a public corporation listed on New York Stock Exchange (NYSE) market. The company...
Baldwin Corporation is a public corporation listed on New York Stock Exchange (NYSE) market. The company researches, develops, manufactures, and sells various products in the health care industry worldwide. Baldwin Inc. operates in three main segments: Consumer, Pharmaceutical, and Medical Devices segments. The primary corporate objective of the company is to maximize the value of the owners’ equity by increasing the price of its shares in the stock market. Unfortunately, the company’s stock price has been declining over the past...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT