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Effects of Technology on Industries

1a. the graph below shows the effect of technological breakthrough on the labor demand curves of the wheat and computer industries.

Wage

PWMPLW

PW1MPLW1

Pc1MPLc1

PCMPLC

Labor

b. Technological breakthrough raises the marginal product of labor. The demand for labor therefore increases thereby shifting the labor demand curve for computer industry and increasing productivity for wheat industry. The technological change in the computer industry reduces the wages as efficiency is improved whereas wheat industry manifests high wages.

c. As stated above, the production in the computer industry increases positively due to the technological breakthrough and increasing the marginal production per worker. Labor demand reduces in this sector as more efficiency has been enhanced. On the other hand, the whet industry may employ cheap production techniques considering the technological breakthrough in the computer industry. However, labor demand may not necessary witness reducing effects, but production and marginal product per worker will however increase rapidly.

d. The graph below demonstrate the effect of relative price effects on the production mix of the two industries

Computer

Q(W,C)

Wheat

e. The decline in Pw relative to Pc is based on the increased production in wheat industry after application of the technicological breakthrough in the computer industry in wheat production. The decline in prices overally increases the marginal product across the industries thereby shifting demand curves for labor to the right. As the marginal product of labor and capital increases, fair distribution of income (benefit) increases amount the capitalists and landowners.

f. Tastes and preference is an important element in production since it shapes the direction of demand. In the event that people prefer food more to computers, the demand in wheat industry will increase overally thereby increasing the marginal production. The marginal increases both in prices and demand have corresponding increasing effects on output per worker. As the input increase, workers expect higher incomes, thereby raising the wages for labor.

2a.When the price for tractor and manufactured goods (price of capital) increase by 10% and the prices of food also increase by 5 %, inflation rates increases and the counter effect by the employees will increase demand for more wages. Increase in prices tractors increase the cost of food production thereby increasing the prices of food. At the same time, the need for increasing output to reduce the effects of increasing food prices will be high hence increasing the amount of labor as illustrated in the graph below.

WagePFMPLF

PFMPLF

PTMPLT

PTMPLT

Labor

b. A steadily increasing prices of food and factors of production have myriad effects on workers. The increased prices in the general economy will diminish the wages relative to labor raising alarm for wage increments. Wage increase for the workers in food and tractor business would mean further increase in inflation unless the increase is associated with increased output.

c. increase in prices of tractors leads to increase in the marginal cost of production and employment of extra workers, since the marginal revenue would be lower than the marginal cost of workers in each industry. Therefore, increasing prices have reducing effects on the marginal products of labor, thereby reducing output of each industry.

3a. for a fixed capital, the graph below illustrate the production function of the industry.

Computers

Labor

b. When capital is fixed, the value of each additional unit of labor declines at some point. According to the law of diminishing returns, for a fixed capital, rate of output generation by each unit input finally reach maximum and then begin to fall.

c. Marginal product of labor is a factor of output per worker and price level in the economy. As the number of workers increase in a firm, the marginal product per worker reduces, and therefore, the firm’s willingness to hire more workers reduces. Therefore, real wage of labor depends on output price, marginal product of labor per worker and a firm’s willingness to hire workers.

d. If the marginal product of labor of 3 workers is 15, based on marginal output terms, their wages will be 18. The owners of the capital maximize revenues per worker based on the market prices and minimize costs of production. Minimization of costs may mean stopping employment of other workers or reducing the wages of the existing workers. The later is next to impossible; therefore the capitalist’s income comes from the profit made through maximization of marginal revenue per worker. From the three workers, the capital income would be 45.

e. Real wage is a function of price levels in the economy and the nominal wage rate. Maximization of revenues through hiring 2 more workers are relevant to an increased demand and output in an industry. Out of hiring 2 more workers, the capitalists expects to reap more revenue and maximize profits and make high entrepreneurial interests on capital invested.