Class Demand Curve for Led Zeppelin
1000
900
800
700
Ticket price
600
500
400
300
200
100
0
0
50
100
150
Number of tickets
200
250
Demand Table: Led Zep
Price
1000
750
700
600
500
400
300
250
200
150
100
75
50
25
10
0
Quantity Demanded
6
9
10
12
16
17
21
24
36
46
74
82
122
156
207
229
Price and Revenue: Led Zeppelin
9000
8000
7000
Revenue
6000
5000
4000
3000
2000
1000
0
0
100
200
300
400
500
Ticket Price
600
700
800
900
1000
Sales and Revenue: Led Zeppelin
9000
8000
7000
Revenue
6000
5000
4000
3000
2000
1000
0
0
50
100
150
Number of Tickets Sold
200
250
I think per average income per
capita in the U.S. is in the range
1)Less than $20,000 9) $55,000-$60,000
2) $20,000-25,000
10) more than $60,000
3) $25,000-30,000
4) $30,000-35,000
5) $35,000-40,000
6)$ 40,000-45,000
7) $45,000-50,000
8) $50,000-$55,000
I think per average income per
capita in the U.S. is in the range
1)Less than $20,000 9) $55,000-$60,000
2) $20,000-25,000
10) more than $60,000
3) $25,000-30,000
4) $30,000-35,000
5) $35,000-40,000
6)$ 40,000-45,000
7) $45,000-50,000
8) $50,000-$55,000
Correct answer
U.S. Per capita income in 2006 was about
$43,000.
If the average value product of labor is
greater than the wage, a firm can increase
its profits by hiring more labor.
A) True
B) False
Example: Wage is $25
workers
1
2
3
4
•
•
•
•
v.output
$200
$300
$350
$360
AVP
$200
$150
$116.66
$90
Profits
$175
$250
$275
$260
With 4 workers, Avg Val Product is $90.
That exceeds the wage.
Will profits increase from hiring a fourth worker?
No. See table.
A profit maximizing firm will choose the
amount of labor that maximizes the
marginal value product of labor.
A) True
B) False
Example: Wage is $25
workers
1
2
3
4
•
•
•
•
v.output
$200
$300
$350
$360
MVP
$200
$100
$50
$10
Profits
$175
$250
$275
$260
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.
If this firm maximizes profits
by hiring 3 workers, the wage
must be between:
A) $40 and $60
B) $85 and $120
C) $60 and $100
D) $60 and $80
E) $100 and $113.33
Number
workers.
1
Value of
output.
$200
2
$240
3
$300
4
$340
5
$350
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 4th is $40. If
wage is between $40 and $60, it pays to add
third laborer, but not a 4th.
And on to our lecture…