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Understanding U.S. Per Capita Income and Labor Profit Maximization Techniques

This text explores U.S. per capita income levels, focusing on annual income brackets under $60,000, with a highlight on the approximate figure of $43,000 in 2006. It discusses the relationship between the average value product of labor and wages, explaining under what conditions firms can maximize profits by hiring additional labor. Through examples, it illustrates the marginal value product rule, guiding firms in their hiring decisions based on the intersection of labor costs and productivity gains.

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Understanding U.S. Per Capita Income and Labor Profit Maximization Techniques

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Presentation Transcript

  1. Demand Table: Led Zep

  2. 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

  3. 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

  4. Correct answer U.S. Per capita income in 2006 was about $43,000.

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

  6. Example: Wage is $25 • With 4 workers, Avg Val Product is $90. • That exceeds the wage. • Will profits increase from hiring a fourth worker? • No. See table.

  7. A profit maximizing firm will choose the amount of labor that maximizes the marginal value product of labor. • True • False

  8. Example: Wage is $25 • 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.

  9. If this firm maximizes profitsby hiring 3 workers, the wage must be between: • $40 and $60 • $85 and $120 • $60 and $100 • $60 and $80 • $100 and $113.33

  10. 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.

  11. And on to our lecture…

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