Name PSU Email Address

Name Psuemail Address

Name Psuemail Address

Name:_____________________________ PSUemail address: __________________________ GRAPHING TEMPLATE – print this document and hand draw your answers on the graphs provided. Then scan your work into a SINGLE multi-page pdf. You will be able to attach that pdf file to your homework submission on ANGEL. Graph 1: Graph 2: Graph 3: Graph 4: Graph 5: 1 | Page PQ Work through this document BEFORE beginning homework 3. SCENARIO A - Consider a firm that has the following relationship between labor and output, i.e., a production function.

Along this production function, we hold land, capital (K) and technology (total factor productivity) fixed. TABLE A- The current wage is $150 and the price of output (Q) is $20. L Q MPL MRP Marginal Profit Total Profit *note that the values in the shaded part of the table are provided, but you should able to calculate all of these values. You will need to fill in similar tables in homework 3, so make sure you are comfortable with these calculations NOW. It should be clear from this table that the profit maximizing amount of labor is 3, the profit maximizing amount of output (Q) is 28 and maximum profit is $110.

A sketch of this firm’s production function, including the profit maximizing Q and L combination (labeled point A) is shown below. You should be able to hand sketch this production function using the information from table A. A sketch of this firm’s W/MRP labor market diagram is shown below. The profit maximizing point is labeled (point A) and the blue shaded area is the profit. You should be comfortable hand sketching the graph below using the information from table A.

Scenario A will be your starting point for homework 3. You will be examining several alternative scenarios for this firm (Scenario’s B, C and D), and each time you will compare the new situation to the original case in scenario A. AQLPF[Land, K, A]328

Paper For Above instruction

The given scenario provides a comprehensive overview of a firm's production and profit optimization under specific conditions. To analyze this, we begin by examining the firm's production function, which details the relationship between labor input and output. Holding land, capital, and technology constant allows us to focus exclusively on labor productivity and its impact on profit maximization. The provided table (Table A) indicates the current wage rate of $150 and the market price for output at $20, establishing the basis for marginal calculations.

Within this framework, the firm’s decision-making hinges on the marginal productivity of labor (MPL), marginal revenue product (MRP), and the corresponding profit calculations. The calculation of MPL involves the change in output resulting from one additional unit of labor, which, combined with the output price, yields the MRP. The MRP reflects the additional revenue generated by employing one more unit of labor. Profit maximization occurs at the point where the additional cost of labor (wage) equals the additional revenue generated (MRP). Based on the provided data, the firm identifies that utilizing three units of labor maximizes profit, producing an output of 28 units with a maximum profit of $110.

The demand for labor in the firm's MRP curve can be graphically represented in the W/MRP labor market diagram. The equilibrium point (point A), where wage equals MRP, signals the optimal employment level. The profit area is shaded in blue on the graph, illustrating the profit earned at this point. Hand sketching these graphs involves plotting the production function with the profit-maximizing point, and constructing the labor market diagram where the labor demand curve corresponds to the MRP curve, intersecting the wage line at the optimal employment level.

Scenario A serves as the benchmark for analyzing subsequent scenarios (B, C, and D). These will involve altering variables such as wages, output prices, or technology, and comparing the new optimal points and profit levels to this baseline. This comparative approach facilitates a comprehensive understanding of how different factors influence firm profitability and resource allocation decisions in microeconomics.

References

  • Frank, R. H., & Bernanke, B. S. (2019). Principles of Economics (7th ed.). McGraw-Hill Education.
  • Mankiw, N. G. (2021). Principles of Economics (9th ed.). Cengage Learning.
  • Pindyck, R. S., & Rubinfeld, D. L. (2018). Microeconomics (9th ed.). Pearson.
  • Halpern, D. (2017). Microeconomics: An Intuitive Approach. Routledge.
  • Perloff, J. M. (2017). Microeconomics (7th ed.). Pearson.
  • Samuelson, P. A., & Nordhaus, W. D. (2010). Economics (19th ed.). McGraw-Hill Education.
  • Varian, H. R. (2014). Intermediate Microeconomics: A Modern Approach (9th ed.). W. W. Norton & Company.
  • Friedman, M. (2002). Price Theory: A Provisional Text. Hayek Press.
  • Nash, J. (1950). Equilibrium points in N-person games. Proceedings of the National Academy of Sciences, 36(1), 48–49.
  • Samuelson, P. A. (1953). The Robinson–Patman Act and oligopoly. The Review of Economic Studies, 20(2), 131–135.

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