AP_Krugman_Textbook

module 69 Introduction and Factor Demand 689

Section 13 Factor Markets

5. The individual firm’s demand curve for labor is
   a. the VMPLcurve.
   b. upward sloping.
   c. horizontal at the level of the product price.

d. vertical.

e. equal to the MPLcurve.

Tackle the Test: Free-Response Questions

1. Refer to the table below. Assume the firm can sell all of the
   output it produces at a price of $15.
   Quantity of labor (workers) Quantity of output
   00
   1 300
   2 550
   3 700
   4 800
   5 850
   6 890
   a. What is the value of the marginal product of labor of the 3rd
   worker?
   b. Draw a correctly labeled graph showing the firm’s demand
   curve for labor.
   c. What happens to the demand curve for labor if the price of
   the product increases to $20? Show the result on your graph
   from part b.
   d. Assume that a technological advance doubles the
   productivity of workers. Calculate the total quantity that
   will now be produced with each quantity of workers.

Answer (7 points)

1 point:VMPL= 150 ×$15 =$2,250

VMPL

Quantity of labor (workers)

123456

6,000

5,500

5,000

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

VMPL 1

VMPL 2

1 point:Axes are correctly labeled.

1 point:VMPLis downward sloping and labeled.

1 point:VMPLis plotted using correct numbers (see graph).

1 point:The demand curve for labor shifts to the right.

1 point:VMPLcurve is shown shifted to the right.

1 point:The new quantities produced are 600; 1,100; 1,400; 1,600; 1,700;

and 1,780.

2. Draw a separate, correctly labeled graph illustrating the effect
   of each of the following changes on the demand for labor.
   Adopt the usual ceteris paribusassumption that all else remains
   unchanged in each case.
   a. The price of the product being produced decreases.
   b. Worker productivity increases.
   c. Firms invest in more capital to be used by workers.