Describe the difference between a diminishing marginal product of labor and a negative marginal product of labor. Why would a profit-maximizing firm always choose to operate where the marginal product of labor is decreasing (but not negative)?
Diminishing marginal product of labor means that the last worker hired contributes less to the total output of the firm than the worker who was hired just previous to her. Negative marginal product of labor suggests that the last person hired actually causes total output of the firm to decline. The firm evaluates the benefit of hiring (added revenue) versus the added cost of hiring (wage). In competitive markets, the cost and benefit converge only when marginal product declines. If the marginal product of labor is negative, hiring an additional worker would actually decrease revenue. A profit-maximizing firm would never choose to operate where marginal product is rising because hiring an additional worker would increase the "value" a worker contributes to the firm, while costs remain constant. Thus, the firm will choose to operate where marginal product of labor is decreasing.
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Based on the figure below. Starting from long-run equilibrium at point C, a tax increase that decreases aggregate demand from AD1 to AD will lead to a short-run equilibrium at point ________ and eventually to a long-run equilibrium at point ________, if left to self-correcting tendencies.
A. D; C B. D; B C. A; B D. B; C
The opportunity cost of postponing income to some future time depends on the interest rate
a. True b. False Indicate whether the statement is true or false
Women earn less on average than men. Which of the following would be the logical conclusion?
a. Women must be the victim of employment discrimination. b. Women must be less productive. c. Men must be more highly motivated and materialistic. d. Without consideration of preferences and productivity factors, differences in unadjusted mean earnings do not necessarily reflect employment discrimination.
2 demand-side theories:
What will be an ideal response?