Graded Assignment

Question 1: (5 points)
You are the manager of a firm selling product X in a competitive market. You consider writing a market report on X. Due to some economic changes, there is a significant increase in the wages of workers. Please write a report about the expected effects on the market equilibrium price and equilibrium quantity of product X. The following points help you organize your report.
1. Indicate the effect of this event on supply and / or on demand.
2. Analyze what will happen to market equilibrium price and equilibrium quantity in the short run.
3. If wages are expected to continue at higher levels, analyze what will happen to market equilibrium price and equilibrium quantity in the long run.
Answers to Question 1

Question 2: (5 points)
You've been hired by a firm to determine whether it should shut down its operation. The firm currently uses 70 workers to produce 300 units of output per day. The daily wage (per worker) is $40, and the price of the firm's output is $20. The cost of other variable inputs is $500 per day. The firm's fixed cost is $3000 per day. You know that the marginal cost of the last unit is $30.
1. Calculate the firm’s daily losses.
2. Should the firm continue to operate at a loss? Carefully explain your answer.
Answers to Question 2

Question 3: (5 points)
Given the data of the last question (2), the owner of the firm suggested that losses can be reduced by firing some workers. If you found that the marginal product of the 70th worker was 4 units of output per day, do you agree with the owner to reduce employment in order to reduce losses? Please Explain carefully.
Answers to Question 3

“Wishing you all the best of luck”