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Chapter 18 HMWK

Pretend for a moment you are the instructor developing this course.  Write 3 short answer questions for an exam over this chapter that you believe cover the most important points in the chapter. Post all three questions on your blog.  Give an example of a great answer and an okay answer to each question. (Be sure to differentiate between the two responses. Don't write simple definition or list questions.) 
Your overall goal here is to first choose questions that highlight the important part of the chapter - which means you have to decide what that is.  The second goal is to be sure you know the difference between a C answer and an A answer.  An A answer will talk about the theory covered in the chapter and will include some analysis of the concepts. This blog post gets called out as both the favorite and the least favorite topic more than any other topic - favorites win by a small margin, so I leave it in.  Hope you are one of the favoriters.



Question: How do firms decide how many workers to hire?

Good Answer: Competitive firms will hire until the value of a worker's marginal product equals its price.  If a garment factory sells dresses for $100 and hires labor at $10 per hour, it should hire labor until the marginal product of labor is 10 dresses per hour.

Okay Answer: They will hire as long as the workers are being profitable.




Question: If the market price of an output good increases, how would you expect it to influence the demand for labor? What if the availability of a factor of production declines?

Good Answer: When the market price of a good increases, it will cause the marginal product to rise. This means that for the same amount of output, each worker will create more profit. Therefore, firms will hire additional laborers. If the availability of a factor of production decreases, the price for that item will rise and so in turn will the cost to produce the good. The marginal product of each worker will diminish, and so a firm will not hire as many workers.

Okay Answer: If the price of an output good increases, firms will hire more workers because they want to make more money by producing more goods. If the availability of a factor of production declines, labor will also decline because firms won't have as many resources to employ them.





Question: If a law requires firms to give each full-time worker $5 of benefits such as health insurance for every hour of work, how will it affect the number of workers that will be hired?

Good Answer: This law would essentially raise the price of full-time labor by $5 per hour, which would have an impact on marginal product and reduce demand for full-time labor. However, I would expect to see a shift towards hiring more part-time workers in order to get around the law.

Okay Answer: It depends on sales because extra expenditures need to be covered by profit.

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