Labor economics

\fShort-Run Labor Demand 1. Paddy's Pub produces hand-crafted wooden chairs in the perfectly competitive market for hand- crafted wooden chairs using woodshops (5) at rental rate $200 and labor (E) at wage rate $10 according to the production function /(5, E) = 553/El/. Suppose that Paddy's Pub currently has four woodshops, and the market price of a hand-crafted wooden chair is $125. The markets for labor and woodshops are also competitive. Note: When necessary, round to two decimals. (a) What is the (approximate) marginal product of the 10th unit of labor? Explain the meaning [2 pts] of this number. Hp. (4)= .6287 . .63 units, 10*h labor gnit increases by .43 units (b) What is the (approximate) value of the marginal product of the 10% unit of labor? Explain [2 pts] the meaning of this number. VMPL = 125 x . 6281 Additional labor Unit brings$18.59 . 13.5815 . 18.59 to wevenue. (c) How many hours of labor should Paddy's Pub employ in the short-run to maximize profits? [4 pts] The equation for the marginal product of labor is given by MPS = ()3/4. Label this number E;. (Note: In this example, the number of woodshops is fixed in the short-run). 14/4) /4 10. (125) 5 (4)"/4 . (E)- /4 4 . (125)5 2 . 10 (1)V4 : 156.25 . E. (d) Now suppose that the wage rate rises to $12. Assuming we're still in the short-run, how [2 pts] many hours of labor should Paddy's Pub employ at the new higher wage rate? Label this number Bj. w = 1 12. (125) 5 (8)38 -B/4 /4 (125) 15 132.53 . E. 12 x(4)74 (e) From your calculations in (c) and (d), compute the company's short-run elasticity of labor [2 pts] demand. If necessary, round to two decimals. 12.53 -150.85 154.25 2 : -1. 67904 x -1.08 Page 5