price per robot = 5 dollars How many engineers should Cyberdyne hire? (revisited) The following table describes annual production of service robots, by Cyberdyne Systems, a robotics company located in Sunnyvale, California. Cyberdyne has a state-of-the-art facility and plenty of hardware lying around; thus, their main variable cost input is the number of engineers they need to hire: of engineers of robots Marginal Value of the Revenue Wage costs Total Profits produced Product of Marginal gained from (Total an Engineer Product of sales of Product) an Engineer robots 20 27 4. 30 32 6. 33 2. Fill out the table and find the number of engineers that maximizes profits. 3. Does Cyberdine's employment of engineers obey the Law of Diminishing Margin: Returns? How do you know? 7. (stop here) How might an improvement in the productivity of an engineer affect the Demand for an engineer? Note: we need to think carefully about this. • If each engineer becomes more “productive”, what do you expect will happen to TP and MP? • What do you expect will happen to the Value of the Marginal Product (and hence, the firm's Demand for engineers) if – The price of a robot is held fixed – The market for robots (i.e., the output market) adjusts to the higher productivity of an engineer To help you think about the latter, here is a diagram for the market for robots: Market for robots p. Quantity of Q* robots What happens here and how might it affect the VMP of an engineer? 5. How would the number of engineers hired by Cyberdyne change if the wage of an engineer changed to 350 (thousand) USD? Demonstrate using the graph. 6. How might the number of engineers hired by Cyberdyne change if the price of a robot were to decrease? Demonstrate using the graph. (the questions continue on the next page)

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