SolutionsCF8e-Ch12 - Case/Fair Microeconomics Solutions...

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Case/Fair Microeconomics Solutions CHAPTER 12 1. Supply shifts right from lower costs and entry of new firms. Demand shifts right and consumers increase quantity demanded. LRAC shifts down. 2. Disagree. Even if shareholders are made worse off, the breakup could be a potential Pareto improvement. The term efficient change is often used to describe changes in which some are made better off and others worse off but in which those who gain receive benefits that are greater than the costs imposed on those who lose. The theory of the court is that consumers will gain more than shareholders lose, making the breakup efficient. 3. Certainly the demand for labor will drop. This will put downward pressure on wages. As people lose their jobs income falls, and those who see lower wages or who are laid off consume less. There will be less borrowing in financial markets. The housing market in San Jose will experience a decline in demand and possibly falling process. Firms that were servicing the high tech sector with banking or legal services find themselves in a slump. There are dozens of other connections that can be made. 4 At a wage of 119 koruna per hour, 4 workers should be hired. The fifth worker would produce less value in an hour (112 koruna) than his/her wage. (b)
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(c) If the wage rises to 125 koruna per hour, assuming bread still costs 20 koruna, only 5 workers should be hired. (If bread still costs 14 koruna, as in the first example, only 4 workers would be hired.) (d) Yes, the allocation of labor would be efficient because each firm would hire labor until the wage was equal to the value of the marginal product of output. If all firms paid the same wage, they would all
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This note was uploaded on 04/13/2008 for the course ECON EC101 taught by Professor Todd during the Spring '08 term at BU.

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SolutionsCF8e-Ch12 - Case/Fair Microeconomics Solutions...

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