Microeconomics- Unit 5 FRQ

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to "Calculate," you must show how you arrived at your final answer. 1. People's Plumbing is the only plumbing company in a small rural town and is the only company employing plumbers in the area. The graph shows the market for plumbers with the marginal factor (resource) cost curve, the marginal revenue product curve, and the labor supply curve. 240 Marginal Factor Cost Wage Rate ($) Supply 132 114 96 78 60 Marginal 24 Revenue Product 36 54 72 90 108126 144 180 216 240 Quantity of a. Identify the profit-maximizing number of plumbers that People's Plumbing will hire. Using the labeling on the graph, explain your answer. b. Identify the profit-maximizing wage rate that People's Plumbing will pay its plumbers. Using the labeling on the graph, explain your answer. C . State whether there will be a shortage or a surplus of plumbers if the wage rate is $114. Calculate the size of the shortage or surplus. Show your work. d. Now, suppose that the market for plumbers becomes perfectly competitive. What wage rate would People's Plumbing pay its plummers if it were a perfectly competitive firm? Using the labeling on your graph, explain your answer. e. Suppose instead that People's Plumbing uses both labor and capital in order to provide its services. The marginal product of the last unit of labor hired is 30 plumbing jobs per day and the marginal product of the last unit of capital rented is 20 plumbing jobs per day; the daily labor wage rate for labor is $60 and the daily rental price for capital is $20. To minimize the cost of providing its current level of services, should People's Plumbing hire more plumbers, fewer plumbers, or the same number of plumbers? Use marginal analysis to explain your