Ricardo-Viner Model a. Consider a manufacturing firm where total cost (TC) equals the product of the wage per worker in manufacturing (wm) and the number of labor employed in the manufacturing firm (Lm) and where total revenue (TR) equals the product of the price of the manufactured good (Pm) and the quantity of manufactured goods produced and sold (M). Note that the production function for manufactured goods is M = M(Lm, K) where K is the capital stock. The total return to capital is called profits and is the difference between total revenue and total cost. Consider that under perfect competition wm and Pm are givens from the perspective of the firm. Also note that in the short run the capital stock is fixed. Graphically illustrate on one graph total cost and total revenue as a function of the labor employed. Then on another graph illustrate profits as a function of the labor employed. Indicate on the graphs the optimal level of labor that should be employed in order to maximize profits.

Ricardo-Viner Model a. Consider a manufacturing firm where total cost (TC) equals the product of the wage per worker in manufacturing (wm) and the number of labor employed in the manufacturing firm (Lm) and where total revenue (TR) equals the product of the price of the manufactured good (Pm) and the quantity of manufactured goods produced and sold (M). Note that the production function for manufactured goods is M = M(Lm, K) where K is the capital stock. The total return to capital is called profits and is the difference between total revenue and total cost. Consider that under perfect competition wm and Pm are givens from the perspective of the firm. Also note that in the short run the capital stock is fixed. Graphically illustrate on one graph total cost and total revenue as a function of the labor employed. Then on another graph illustrate profits as a function of the labor employed. Indicate on the graphs the optimal level of labor that should be employed in order to maximize profits.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter11: Profit Maximization

Section: Chapter Questions

Problem 11.14P

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