HW 3 are 100b

HW 3 are 100b - ARE 100b Spring 2009 HOMEWORK 3 due...

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Unformatted text preview: ARE 100b Spring 2009 HOMEWORK 3 due Thursday, June 4th, in class 1. A firm produces circuit boards according to the production function qj = lOLi". The firm is a competitive price-taker. a. Write the firm’s profit fimction in terms of P, Li, w and FCi. b. What is the firm’s derived demand function for labor? (Answer will be in terms of P and w.) c. Suppose there are 5 identical competitive firms that hire labor in this market. What is the industry demand function for labor? Now suppose the firms’ circuit boards sell worldwide in a competitive market, at price P = $50; and local labor supply in the region is LS = 30w. What is the market equilibrium wage? How many units of labor are hired by each firm, and by the industry as a whole? How many circuit boards are produced? d. Based on your answer to 0, find the marginal product of labor and the value marginal product of labor for this industry. Is labor being exploited? Why or why not? e. Now imagine that there is only firm employing labor in the local area, which acts as a monopsonist. (Again, assume q,- = 10L;6 , P = $50, and LS = 30w). Find Li, w*, and Q. Is this firm exploiting labor? Show why or why not. 2.An industry produces handmade rag dolls. Each doll requires 2 yards of cloth, 3 yards of yarn, and 1/2 hour of labor to produce. Market information: The supply of cloth is perfectly elastic at pc = $3 per yard; The supply of yarn is perfectly elastic at py = $.30 per yard; The supply of labor is Ls = 10 w; The inverse demand for rag dolls is P = 609.9 - 5 Q a. Write the production function in terms of cloth C, yarn Y, and labor L. What is this functional form called? b. Suppose there are a number of small competitive firms that produce these dolls. In long—run competitive equilibrium, how much of each input will be used by the industry? How many dolls are produced by the industry? What is the price per doll? What is the market wage? How much money does the industry spend on each input, and how does this compare to total industry revenues? c Repeat question b, but assume there is a single doll producer who is a monopolist in the output market. d. Repeat question b, assuming there is a single doll producer in the area, who ships the dolls into a competitive global market where P = $9.90, but who is a monopsonist in the local labor market. 3. Michael's Custard has a monopoly in the sale of frozen custard cones in Betterton. The inverse demand for its cones is P = 5.00 - .001*Q Michael's cones require 1 cone (C), 2 scoops of frozen custard (F), and 3 minutes of labor (L)per cone. (Fixed factor technology). Cones cost 10 cents, fiozen custard costs 40 cents per scoop, and labor costs 9.00 per hour. Input markets are competitive and supply of all inputs is perfectly elastic. a. Write the firm’s production function for cones in terms of C, F, and L. Now write the profit fimction in terms of Q. b. How many cones are sold? How much revenue is spent on each input? c. If instead Michael's Custard priced its output competitively, what would it charge per cone? Now how much revenue would be spent on each type of input? 4. The main employers in Brownsville are several underground coal mines. The total demand by these firms for labor is LD = 800 - 100*w where w is the hourly wage and L is the number of hours of labor used per day. The supply of coal miners' labor in Brownsville is L3 = 100w a. If the labor market is perfectly competitive, what is the equilibrium wage? How many hours of labor are used? Ifeach worker works an 8-hour shift, how many miners are employed per day? b. A labor union is organized among the coal miners in Brown Lung. Its goal is to maximize economic rents to miners. How much labor is supplied by the union (assuming all miners have joined?) What is the new wage? How many workers are employed, assuming again an 8-hr. shift? c. If instead the union attempted to maximize total revenues paid to labor (disregarding opportunity costs of labor in alternative activities), what quantity of labor would be supplied, and at what wage? 5. Pigeg Wiggly Market is considering whether to use humans (H) or self-scanners (S) to check out its customers. Humans cost $25/hour to employ, including benefits. Scanners cost $20/hour to operate. Humans can ring up 30 customers per hour, while scanners can ring up 22. a. Write the production function in terms of H and S, where q = number of customers rung up. What is the term used to describe these types of inputs? b. Suppose the firm’s goal is to ring up the maximum number of customers per hour, while - keeping the total cost of checking them out to $300/hour. What is the optimal # of humans and scanners to use, and how many customers can be scanned per hour? c. Now, suppose due to technological advances, the cost of operating scanners declines to $15/hr. How does this affect your answer to part b? ...
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HW 3 are 100b - ARE 100b Spring 2009 HOMEWORK 3 due...

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