Demand Table: Led Zep

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Demand Table: Led Zep - PowerPoint PPT Presentation

Demand Table: Led Zep. I think per average income per capita in the U.S. is in the range. 1)Less than \$20,000 9) \$55,000-\$60,000 2) \$20,000-25,000 10) more than \$60,000 3) \$25,000-30,000 4) \$30,000-35,000 5) \$35,000-40,000 6)\$ 40,000-45,000 7) \$45,000-50,000

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Demand Table: Led Zep

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1)Less than \$20,000 9) \$55,000-\$60,000

2) \$20,000-25,000 10) more than \$60,000

3) \$25,000-30,000

4) \$30,000-35,000

5) \$35,000-40,000

6)\$ 40,000-45,000

7) \$45,000-50,000

8) \$50,000-\$55,000

1)Less than \$20,000 9) \$55,000-\$60,000

2) \$20,000-25,000 10) more than \$60,000

3) \$25,000-30,000

4) \$30,000-35,000

5) \$35,000-40,000

6)\$ 40,000-45,000

7) \$45,000-50,000

8) \$50,000-\$55,000

U.S. Per capita income in 2006 was about \$43,000.

If the average value product of labor is greater than the wage, a firm can increase its profits by hiring more labor.
• True
• False
Example: Wage is \$25
• With 4 workers, Avg Val Product is \$90.
• That exceeds the wage.
• Will profits increase from hiring a fourth worker?
• No. See table.
A profit maximizing firm will choose the amount of labor that maximizes the marginal value product of labor.
• True
• False
Example: Wage is \$25
• To maximize Marginal Value Product hire 1
• To maximize profits, hire 3.
• What does Marginal value product rule say?
• Hire additional labor so long as marginal value product exceeds the wage.
If this firm maximizes profitsby hiring 3 workers, the wage must be between:
• \$40 and \$60
• \$85 and \$120
• \$60 and \$100
• \$60 and \$80
• \$100 and \$113.33
Why is this?
• According to the marginal profit rule,

Firm should add workers so long as marginal value product of labor exceeds wage.

Marginal value product of third laborer is \$60, marginal value product of 4th is \$40. If wage is between \$40 and \$60, it pays to add third laborer, but not a 4th.