MS10 - Economics 104B Midterm Exam Spring 2010 1. (8pt)...

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Economics 104B Midterm Exam Spring 2010 1. (8pt) Suppose that Roger could choose how many hours to work at wage rate of w and chose to work 7 hours a day. The employer offers 1.5 w for every hour he works beyond a minimum of 8 hours per day. Show how his budget constraint on leisure-consumption bundles changes. Will he choose to work more than 7 hours a day? Answer: The new offer breaks Roger’s budget line in two parts. One part is given wl + C = 24 w, l 16 , (1) and the other part is given by 1 . 5 wl + C = 32 w, l 16 . (2) See the Figure 1 for an illustration. 2. Poland wants to privatize its farming industry. Assume that entry into the wheat growing segment of the industry will be easy. Also assume that each wheat farm has a LR cost function of the following type: C ( q ) = 1 2 q 2 - 4 q + 200 and C (0) = 0 , where q is the farm’s output. At present, the government is setting a price of p = 20 per bushel of wheat. a) (7pt) In LR competitive equilibrium for wheat growing segment of the farming
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This note was uploaded on 08/27/2011 for the course ECON 104 taught by Professor Staff during the Spring '10 term at UCSB.

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MS10 - Economics 104B Midterm Exam Spring 2010 1. (8pt)...

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