# Define the marginal product of labor and explain how it relates to the production function

(60 points total).

a) (5 points) Fill in the Table below.

 Number of workers Units of output MPN 0 1 40 2 75 3 105 4 130 5 150 6 165 7 175

b. (10 points) Define the marginal product of labor and explain how it relates to the production function (with N on horizontal axis and Y on vertical axis). What shape does a production function typically take and why? Does this production function take the ‘typical’ shape?

Consider the recent news on the value of the US dollar

Assume that you sell your output to Europe for a US price = \$10, and The exchange rate at the beginning of 2017 was one euro = \$1.03 but for ease with the numbers, let’s round down to one euro equal \$1.00. So the euro price of your product is 10 Euros. Answer the following questions.

c) (5 points) You can hire all the workers you want at \$210 per worker. Along with the US price = \$10, calculate the number of workers that you will hire and the associated profit in REAL terms (as we did in class, we ‘assume away’ all other costs of production). Please give me the marginal REAL profit of each worker hired and then add them up and that is the total profit in real terms.

We now adjust for the change in the value of the US dollar relative to the euro – as the title of the article suggests, the current exchange rate is now one euro = \$1.25

d)(5 points) What is the new Euro price of your product, assuming that your US dollar price stays at \$10?

e).(5 points) Given the change in conditions you decide to raise the price of your product in US dollar terms so that the Euro price stays the same as it was before the change in the exchange rate. What is the new US dollar price? Please show all work.

f) (10 points) What has happened to the marginal revenue product (MRPN) for each worker (has it gone up or down?) and why given the change in price? Be sure to define what the marginal revenue product is and what it means in ‘laypersons’ terms.

g) (10 points) Given that the US\$ price of your product has changed, explain how and why you would change your behavior. Please provide the intuition beginning your answer with… at the same level of labor input I am no longer ……… (please be as specific as possible). Again, explain in REAL terms, not nominal terms.

h. (5 points) Calculate the new level of profits in REAL terms given the change in condition including the change in the exchange rate, the change in the US \$ price of your product. and the change in your behavior.

i)(5 points) The Treasury secretary Mnuchin and President Trump would argue that a weak dollar is good for firms and creates jobs – are your results consistent with the notion, why or why not? Explain!