University of Cincinnati
Department of Economics
Economics 1002 Jeffrey Stewart, Ph.D. Sections 006 Fall 2022
Study Questions #7
1. Assume a short run neoclassical production analysis with one fixed and one variable input.
What are the two short run technology assumptions that correspond to this situation?
a. Define marginal product of labor (MPN). Symbolically represent marginal product of
labor. (MPN)
-The change in output that results from employing an added unit of labor
Change in Y over change in L
b. What is the implication of the two short run technology assumptions for the marginal
production of labor (MPN)?
2. Analyze a production function.
- The relationship between employment and marginal product
a. Present a production function symbolically.
-O = f(N, K, T, R ) – Lines should be over the top
O is output/ N is labor input, K is capital stock, T is technology, and R is resources
T is constant, and R poses no problems for the firm
b. Graphically represent a production function on an appropriately labeled diagram.
c. Identify its independent and dependent variables.
-
d. Read a point on the production function. What does this point tell you?
e. Analyze the three properties of a production function.
- Starts at the origin, positive slope- production is monotonic (as long as labor is added
the output will pe positive as well ) and marginal product (Change in Y over change in
N)
e. What is the slope of a tangent to the production function? Be sure you can define and
mathematically represent this concept.
f. Graphically represent this concept’s behavior on a appropriately labeled diagram.
3. What is the profit maximizing condition for any firm’s output level?
Marginal Revenue= Marginal Cost
4. Define marginal revenue (MR). What is the relationship between price and marginal
revenue (MR) in perfect competition? How do you know this? Symbolically represent
marginal revenue (MR).
Addition of total revenue that comes from selling one more unit of output
5. Define marginal cost (MC). Symbolically represent marginal cost (MC) as Campagna
does.
Addition of total cost that comes from producing one more unit of output
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6. Derive the labor demand curve. Define and graphically represent it on an appropriately
labeled diagram.
7. Graphically represent a labor supply curve on an appropriately labeled diagram.
a. Identify the independent and dependent variables.
b. Read a point on this curve. What information does it convey?
c. What is the only property of this curve? Analyze the reason for this property?
d. What motivates workers according to neoclassical economists? Analyze the labor supply
choices according to this logic.
e. Evaluate this labor supply decision using the third essential feature of capitalism.
8. Graphically represent an intersection of labor demand and labor supply curves on
an appropriately labeled diagram.
a. Graphically represent and explain in words what are determined at this point.
b. Characterize the situation in the labor market if the real wage is below equilibrium. What
happens and how does it happen? What is the time period of this adjustment process?
1. Full employment rate of unemployment
2. Frictional Unemployment
3. Natural rate of unemployment
4. Non accelerating inflation rate of unemployment
c. Characterize the situation in the labor market if the real wage is above equilibrium. What
happens and how does it happen? What is the time period of this adjustment process?
9. What are the only two possible explanations for unemployment in this neoclassical model?
Explain the reasons for each. Who or what is responsible for unemployment according to
this analysis? Provide the reasons supporting your conclusion.
10. What are the reasons for opposing raising the minimum wage? Evaluate those reasons.
11. What are the reasons for favoring raising the minimum wage? Evaluate those reasons.
12. What do the latest data conclude about increasing minimum wages and unemployment?
What are the implications of this data for the minimum wage debate?
W/P= Real Wage
N= quantity demanded of labor
Laws of diminishing marginal return- As equal increments of the variable input are added
to a given amount of fixed input, additional output declines
Labor supply is a choice between the pain of work and the pleasure of leisure
Third Essential feature of
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