Econ 100A PS2

Econ 100A PS2 - Department of Economics University of...

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D e p a r t m e n t o f E c o n o m i c s Spring 2007 University of California, Berkeley Prof. Woroch Economics 100A PROBLEM SET 2 Due: Tuesday, February 20, 2007, 8:00 AM (in lecture) I. TRUE or FALSE and EXPLAIN : For each statement below, decide whether it is true or false, and explain the reasoning behind your answer in a few sentences . When appropriate, provide a diagram. 1. Francesca has a backward-bending labor supply curve because when she recently received an hourly wage increase, she voluntarily cut back on her hours—working fewer hours but earning the same amount. 2. If, in a two period world with a single good, consumption in the second period is a Giffen good , then the consumer will respond to a rise in the interest rate by saving less . 3. A firm that produces with labor and other inputs, and its technology exhibits decreasing returns to scale everywhere, will experience diminishing marginal returns to labor. 4. The two-input production function, Q = f(L,K) = (L 2 + K 2 ) ½ , exhibits constant returns to scale. 5. Airports have a very inelastic demand for air traffic controllers. This implies that they find it hard to substitute computers for skilled controllers. II. SHORT ANSWERS . Answer each of the following questions given. Your answers should be accompanied by a few well reasoned sentences and diagrams if necessary. 1. Microsoft Windows and Apple MAC OS are competing operating systems. Apple slashes the price of its operating system in anticipation of a new operating system release from Microsoft. Draw the demand curves for each operating system. Be sure to indicate both the pure price effect and the network externality. How would the demand for Windows differ if there were no other competing operating systems available? Discuss the implications. 2. George Bush is looking into jobs after his second term finishes. He’s narrowed the job search down to two prospects: he could either clear brush at his ranch for $20 per hour or go on the lecturing circuit for $1000 per hour.
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Econ 100A PS2 - Department of Economics University of...

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