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HW4_Online

# HW4_Online - On the last homework we did a labor demand...

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On the last homework, we did a labor demand problem in which wage was given and then you found labor demand and output. However, we know what equilibrium wage is determined by the intersection of the supply and demand functions. So, this week we add a labor supply function. 1. The labor supply function has a positive slope because: A. When wage increases, wealth increases, which causes people to supply more labor. B. The income effect is stronger, so when real wage increases, people increase their supply of labor. C. According to empirical evidence, when real wage increases temporarily, the substitution effect is stronger. When we are considering the aggregate economy, most (aggregate) changes in the real wage are considered temporary. D. The leisure / labor trade-off is a direct one. Answer: C Consider the following production function and marginal product function: Y=10N - 0.01N 2 MPN=10-0.02N Consider the following labor supply function: N S =100+50w You are going to use this information to calculate equilibrium real wage, full employment level of employment, and full employment level of output. The first thing that we need to do is find the labor demand function. Recall that the profit-

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HW4_Online - On the last homework we did a labor demand...

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