1. Do you have a job during the school year? 1.No. 2.Yes, less than 10 hours per week. 3.Yes, between 10 and 20 hours per week. 4.Yes, 20 or more hours per week.

2. If the average value product of labor is greater than the wage, a firm can increase its profits by hiring more labor. 1.True 2.False

3. With 4 workers, Avg Val Product is $90. That exceeds the wage. Will profits increase from hiring a fourth worker? No. See table. workersv.outputAVPProfits 1$200 $175 2$300$150$250 3$350$116.66$275 4$360$90$260 Example: Wage is $25

4. A profit maximizing firm will choose the amount of labor that maximizes the marginal value product of labor. 1.True 2.False

5. To maximize Marginal Value Product hire 1 To maximize profits, hire 3. What does Marginal value product rule say? Hire additional labor so long as marginal value product exceeds the wage. workersv.outputMVPProfits 1$200 $175 2$300$100$250 3$350$50$275 4$360$10$260 Example: Wage is $25

6. Example: Wage is $25. To maximize marginal value product hire 1. To maximize profits, hire 3. What does Marginal value product rule say? workersv.outputMVPProfits 1$200 $175 2$300$100$250 3$350$50$275 4$360$10$260

7. If this firm maximizes profits by hiring 3 workers, the wage must be between: Number workers. Value of output. 1$200 2$240 3$300 4$340 5$350 1.$40 and $60 2.$85 and $120 3.$60 and $100 4.$60 and $80 5.$100 and $113.33

8. Why is this? According to the marginal profit rule, Firm should add workers so long as marginal value product of labor exceeds wage. Marginal value product of third laborer is $60, marginal value product of 4 th is $40. If wage is between $40 and $60, it pays to add third laborer, but not a 4 th.

9. And on to our lecture…