Homework+3+Solutions

Homework+3+Solutions - University of California, Irvine...

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Unformatted text preview: University of California, Irvine Department of Economics Intermediate Economics 11: Econ 1008 Summer 2008 Prof. Safarzadeh Student ID: I: 1 Assignment # 3 Student Name:___ I. Choose the best answer to the following question and write it in the left margin of the question. Please use Scranton for multiple choice questions. 1. A perfectly competitive firm in a perfectly competitive factor market is selling its product at a price of $5. The marginal product of the last unit of labor hired by the firm is 9 units. If the wage paid to labor is $42. The firm should hire more labor. b. The firm should layoff some labor. 0. The firm’s labor input is Optimum. d. The firm is maximizing profit. 2. From optimizing principles of the firm, a firm will hire one more labor if a. MRPL < w. b. MRPL = w. c. MRPL > w. . MPPL = w. e. MPPL = P. 3. Which of the following is true for a perfectly competitive firm operating in a perfectly competitive factor market. a. MRPL = (MPL)(MR) b. MRPL = P. MPL. c. MRPL = w. MPL. 4. MRPL curve is a decreasing function because a. Wages increase as labor input increases. b. Price decreases as output increases. 0. Demand decreases as price increases. MPL falls as hours of work increases. 5. A perfectly competitive firm operating in a perfectly competitive labor market faces @ a perfectly elastic supply of labor (SL). . a perfectly inelastic supply of labor (SL). c. a downward sloping supply of labor (SL). (1. an upward sloping supply of labor (SL). 6. In a competitive labor market, the industry faces a. a perfectly elastic supply of labor (SL). b. a perfectly inelastic supply of labor (SL). 0. a downward sloping supply of labor (SL). an upward sloping supply of labor (SL). 7. In a monopoly labor market, a firm faces a perfectly elastic supply of labor (SL). b. a perfectly inelastic supply of labor (SL). 0. a downward leping supply of labor (SL). ® an upward sloping supply of labor (SL). 8. In a monopoly labor market, firms face a. a. perfectly elastic demand for labor. b. a perfectly inelastic demand for labor. c. a downward sloping demand for labor. @ an upward sloping demand for labor. 9. In a monopsony labor market, firms face a. a perfectly elastic demand for labor. b. a perfectly inelastic demand for labor. Q3) a downward sloping demand for labor. (1. an upward sloping demand for labor. 10. In a monopsony labor market, firms face a. a perfectly elastic supply of labor (SL). b. a perfectly inelastic supply of labor (SL). c. a downward SIOping supply of labor (SL). @ an upward sloping supply of labor (SL). 11. A firm operating in perfectly competitive input and output markets is hiring two inputs, labor (L) and capital (K). Each unit of labor costs $10 and each unit of capital costs $5. At the present time, MPL = 29 units and MPK = 16 units. Given this information, the firm should hire a. more labor layoff some labor c. keep the labor input as it is (1. reduce capital input. e. None of the above 12. A firm operating in perfectly competitive input and output markets is hiring two inputs, labor (L) and capital (K). Each unit of labor costs $10 and each unit of capital costs $5. At the present time, MPL = 29 units and MPK = 16 units. Given this information, the firm should hire more capital b. more labor c. keep the capital input as it is d. reduce capital input. e. None of the above 13. At t e industry level, as the price of input (wages) change, a both the level of output change and the product price change. . Only the level of output changes. 0. Only the product price changes. (I. Neither the level nor the product price changes. e. None of the above. 14. In a competitive factor market, input supply curve facing a firm is a. the average expenditure curve AE. b. the marginal expenditure curve ME. c. the marginal cost curve MC. A & B e. B & c 15. When input is labor, utility maximizing principle of labor decides supply of labor. As wage increases, there will be two effects on supply of labor. Income effect and substitution effect of wage increase. Income effect of wage increase has negative effect on labor supply. b. Income effect of wage increase has positive effect on labor supply. c. Income effect of wage increase has no effect on labor supply. d. Income effect of wage increase has forward bending effect on labor supply. e. None of the above. 16. When input is labor, utility maximizing principle of labor decides supply of labor. As wage increases, there will be two effects on supply of labor. Income effect and substitution effect of wage increase. a. Substitution effect of wage increase has negative effect on labor supply. ® Substitution effect of wage increase has positive effect on labor supply. 0. Substitution effect of wage increase has no effect on labor supply. d. Substitution effect of wage increase has forward bending effect on labor supply. e. None of the above. 17. Labor supply will be backward bending if, a. Substitution effect of wage increase is more than income effect. @ Substitution effect of wage increase is less than income effect. c. Substitution effect of wage increase is equal to income effect. d. All of the above. 18. When output and input markets are both competitive, resources are used efficiently because, a. the difference between total benefits and total costs is minimized. @ the sum of consumer and producer surplus is maximized. c. the sum of consumer and producer surplus is minimized. d. the difference between consumer and producer surplus is minimized. e. None of the above. 19. In monopolistic output markets, the profit-maximizing firm’s, output is below efficiency level, and it uses less than efficient level of input. b. output is above efficiency level, and it uses more than efficient level of input. 0. output is below efficiency level, and it uses more than efficient level of input. (1. output is above efficiency level, and it uses less than efficient level of input. 20. Economic rent arise if supply of input is somewhat inelastic. . perfectly elastic c. unit elastic d. limited. 21. Monopsony happens when a. the purchasing decision of the buyer can affect the price. . the purchasing decision of the seller can affect the price. c. the purchasing decision of the seller can affect the quantity. d. the purchasing decision of the seller can not affect the price. 22. With monopsony power, a. the marginal expenditure (MB) is less than the average expenditure (AE). the marginal expenditure (MB) is greater than the average expenditure (AB). C. the marginal expenditure (MB) is equal to the average expenditure (AE). d. the marginal expenditure (MB) is below the average expenditure (AB). e. None of the above. 23. Monopsonist pays its labor a wage which is 'a less than competitive wage. b. more than the competitive wage. c. the same as the competitive wage. d. decided by the labor unions. 24. A rent-maximizing behavior by unions a. Always benefit non-union workers. b. Always hurts non-union workers. may benefit non-union workers if they can find job non-union jobs. 0 . Can’t be decided. 25. With bilateral monOpoly, wage paid to labor a. is decided by the labor market. 6) depends on bargaining strategies of the two parties 0. depends on profit maximizing behavior of the firms. d. depends on the rent maximizing behavior of labor. 26. Number of unionized labor in US has increased substantially since 1970’s. a. @ decreased substantially since 1970’s. 0 not changed substantially since 1970’s. d. is more than non-unionized labor. e. None of the above. 27. If the nominal interest rate in year t is 10%, and the expected inflation rate for year t is 2%, then the expected real interest rate in year t is approximately: a.2% b. 5% @98% . 10% e. 12% 28. With a nominal interest rate of 10%, the present discounted value of $200 to be received in one year is a. $90.91 b. $165.29 © $181 82 d. $190.00 e. $220.00 29. With a nominal interest rate of 10% per year, the present discounted value of $200 to be received in two years is a. $82.64 @816529 b. $90.91 d. $181.82 e. $220.00 30. Economically, an investment with a net present value of zero is, a. at break-even point. c. at zero economic profit. b. has normal profit. @ All of the above. e. None of the above. 111. Solve the following problems: 1- Demand and supply for a good in perfectly competitive market is given as Q = 100 - 2P and fl= -5 + P, respectively. A firm producing the good in this market has the short-run production function Q = 60L2 - L3. 3- Find the labor input that maximizes output. . '5 0’ . :- A" ,9 Z i Q": 1'LOL’3L‘=O-2L(Iw 3'") U L L“) b- Find marginal physical product of labor. What does it mean? A PFL': &’= IzOL « 1L" L means +L‘Z iimC/fckSé M vafbt+ lief €416 MAdlfiOiflm/ U‘F [figof “Api/t‘f’: Oat-C25 ~> IOO*’1V:~§+P~-> P “=- 35‘ c- Find the optimum labor input if the average wage in this industry is $4095.00. MKPL=W~> P» MIDPL : cross-v 250101.46) moss- L: 39 d- Find the output elasticity at the optimum point. «36? 1, ~ #39 -—. - AL 53(IZO‘39~3’391)(3[51CH “,Iq 2- The production technology of a firm is given by a Cobb-Douglas production function Q = AL’75K'25. The firm has a budget of $120000 to spend on labor and capital. Given that labor and capital cost $3 and $4 respectively, find the optimum level of labor and capital inputs. _: .175—AL-gtj‘KJ-tf #- ’lr/kda7fK‘-75‘ r -— 13’ Ls" ' g 3 _ ‘4 m VOL: ’ 7fAL K273’ L 3 "/K K: 7§OO,- (.2 30000 3- Demand and supply for labor in gadget industry are given as N = 100 - .3W and N = .2W respectively. Suppose that both input and output markets for gadget are perfectly competitive markets. 7 ‘ -- "'\ a- What is the wage paid for labor in the gadget industry? W " b- What is the number of labor hired in the industiy? A] 2 q 3.41/4.2‘_/_”~—3c .,___'I"5" 9" c- What is the wage elasticity of labor demand? fi N , O ‘- §M_.ifi : Z. .Hzm) : I I d- What is the wage elasticity of labor supply? a [A/ e- Suppose that labor in this industry is unionized. Assuming that union is a rent-maximizing union, what will be the number of labor hired in the industry? AZ " 2 E 2 TR? WMV :(3313’ 3»3/V)/V: 3)),7'W-JJ/u‘ MK: 333.3 was/v 1" f/U ---> N: 2.37 f- Whatwill be the wage in the industry? W: 6 w = 333, 3 - 3.3(18:7) g- What is the value of economic rent earned by labor? 7 8 X .. 6) h- Suppose the union changes its strategy from rent-maximizing to revenue maximizing? What will be the wage in the industry? 5 :(55 pm: 333,) » 6,.g/i/30 xv/fo’af w1737*7,?(§0,f): léé'ég i- What will be the number of labor hired in the industry? 5 2 ,. f j- How much is the total revenue? “m WW -: 156,540,? k- Will increase in wage, increase or decrease total revenue? Why? E l a 5- 79¢ 1- Suppose the labor market in the gadget industry is perfectly competitive, but the employers (outputhEket) in the industry have monopsony power. What will be wage under monopsony power? TE: : WW 2 SW we 57w- -\ MEI/OW : 333a 3' NW m. What will be the number labor hired under monopsony? 2 n. Suppose that the labor market in the gadget industry is dominated by a rent-maximizing union and the output market is a monopsony (bilateral monopoly). What will be the wage under this condition? Mgr—w one o- What will be the number of labor hired under the bilateral monopoly condition? 25‘< 1M< 2‘37 ...
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This note was uploaded on 02/20/2009 for the course ECON 62240 taught by Professor Safarzadeh during the Winter '09 term at UC Irvine.

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Homework+3+Solutions - University of California, Irvine...

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