The Push-Up Machine

G. Money, Inc. has invented a new machine that generates energy from human push-ups. You have just been hired as the manager in charge of hiring workers. Your goal is to make sure this firm hires the right amount of workers to maximize profit. Assume that you are hiring workers in a perfectly competitive LABOR MARKET and that the price of electricity is constant.

Supply of Labor

1.  Define Marginal Resource Cost (MRC)-

2.  Explain why MRC is sometimes called MFC

3.  Explain why the MRC is the equal to the supply of labor

4.  Explain why MRC/Wage is constant (graph MRC on back)

Demand for Labor

5.  Define Marginal Revenue Product (MRP)-

6.  Identify how to calculate a workers MRP-

7.  Calculate the MP and MRP assuming that each push-up can generate $1 worth of energy:

Workers / Total Product / Marginal Product / MRP @ $1 / MRP @ $2
0
1
2
3
4
5
6

8.  Explain why the MRP is the equal to the demand of labor

9.  Explain why MRP eventually begins to fall (graph MRP on back)

10.  Identify the number of workers that the firm should hire. Explain how you determined your answer.

FIRM in a Perfectly Competitive Labor Market

$60+
50
40
35
30
25
20
15
10
5

0 1 2 3 4 5 6 7

Quantity of Workers

Shifting Demand

11.  MRP depends on two variables. Marginal Product and the price of the product being produced. For each of the following, identify whether MP or Price changes and indicate if the demand (MRP) increase or decreases.

Situation

/ Marg. Product / Price / Demand/MRP
The price of electricity falls
Stronger workers increases push-up output significantly
Consumers prefer energy generated by wind
New and improved machines increase the amount of electricity each push-up generates
During the hot summer, consumer use more electricity

12.  Assume the demand increases for electricity produced by this firm and now each push-up can generate $2 worth of energy. How many workers should this firm hire? Explain

13.  Draw an industry and firm in a perfectly competitive labor market: