HW3_Online - output (Y). What do you get for Y? A. 910 B....

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This is part of Homework 3. It is worth 5% of the homework and is due on Wednesday before class. You may do this as many times as you wish. Only your HIGHEST score will be counted. This is a simple version of a labor demand question. The idea is to calculate the amount of labor that will be hired in the economy, then to calculate the level of output in the economy. Consider the production function: Y=A(20N-.5N^2). Note that this function is increasing at a decreasing rate. Consider the marginal product of labor function: MPN=A(20-N). Note that this function is positive and decreasing. 1. Assume that A=5. Let nominal wage (W) be $200 and price (P) be $10. What is real wage? A. 10 B. 20 C. 30 D. 40 Answer: B 2. Set real wage equal to MPN, which is MPN=5(20-N). Solve for N. What is profit maximizing N? A. 12 B. 14 C. 16 D. 18 Answer: C 3. Since you have level of employment (N), you can plug N into the production function to get
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Unformatted text preview: output (Y). What do you get for Y? A. 910 B. 960 C. 1000 D. What are you talking about? I'm so confused! Answer: B Now, consider what happens when nominal wage increases. Continuing with: Y=A(20N-.5N^2), MPN=A(20-N), A=5, and P=$10, what happens when nominal wage increases to $250. Calculate real wage, employment (N), and output (Y). 4. Employment (N) is A. 10 B. 15 C. 20 D. Nope. Still confused. Answer: B 5. Output (Y) is A. 937.5 B. 910 C. 877.5 D. Like I said . .. Still don't get it. Answer: A No consider what happens when A increases. Remember that A is productivity. So, say that productivity increases by 100%, which means that A=10. We have: Y=A(20N-.5N^2) MPN=A(20-N) W=$200 (back to the original) P=$10 6. Calculate employment (N) and output (Y). A. N=16 and Y=1920. B. N=17 and Y=1995. C. N=18 and Y=1980. D. Nope. Light bulb in my brain is not turning on. Answer: C...
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HW3_Online - output (Y). What do you get for Y? A. 910 B....

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