homework2answersspring2005

homework2answersspring2005 - Economics 302 Spring 2005...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Economics 302 Spring 2005 Homework #2 Due February 16, 2005 1. Your liberal-activist roommate is plotting to bring down capitalist society. He/she claims that workers are being cheated out of compensation that is rightly theirs. He/she points to sizable profit announcements by large corporations as evidence that workers should be paid more. You decide (unwisely) to debate the issue from the standpoint of an academic economist. a. What common misconception about profit should you point out in your opening statement? Your roommate is likely thinking of accounting profits which are revenue minus operating costs (in our model this is labor cost). Accounting profits have not taken into account the fact that the owners of capital should be paid a return. b. Explain how economists believe that wages are determined. Economist believe that real wages are equal to the marginal product of labor (MPL=w/p). This is the result of profit maximization. c. Show how if the aggregate production function is homogeneous of degree one (which is a reasonable long run assumption) that economic profit is zero rendering your roommate’s argument based upon profit weak. Be thorough in your explanation since your roommate is not easily convinced. If the production function is homogeneous of degree one it can be written as
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 08/08/2008 for the course ECON 302 taught by Professor Gold during the Spring '07 term at Wisconsin.

Page1 / 3

homework2answersspring2005 - Economics 302 Spring 2005...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online