Handout 8 - Handout8 Q1,

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Unformatted text preview: Handout8 Q1, Onefirmusesonlylaborasinputtoproducehotdogs.Thepriceforonehotdogis$1.Therearetwo kindsoflabors:skilledworkers(S)andunskilledworkers(U).Thewageforskilledworkeris$5,whilefor unskilledworkersis$2. Theskilledworkers’technologyisgivenbytablebelow: QofS Output MP MP*P Wage 1 7    2 15 3 21    4 25    5 28    6 30    7 31     Theunskilledworkers’technologyisgivenbytablebelow: QofU MP MP*P Wage 1 4    2 7 3 10    4 12    5 13    6 13.5    7  Output 13    a. Completethetwotablesabove. b. Shouldthefirmonlyhireskilledorunskilledworkers?Why? c. Howmanyskilledworkersthefirmshouldhire?Howmanyunskilledworkersthefirmshould hire?Whatistheoutputamountofthisfirm? d. NowtheNewYorkTimestellspeoplethathotdogisakindofhealthyfood,sothedemandof hotdogincreases.Thepriceofhotdogchangesto$2.Otherpricesdonotchange.Howmany skilledworkersthefirmshouldhire?Howmanyunskilledworkersthefirmshouldhire?Whatis theoutputamountofthisfirm?  Q2,  Afirm’stechnologyis:Q=2K+4L. HereQisquantityofoutput,LisquantityoflaborandKisquantityofcapital.  a. Isthistechnologyconstant,decreasingorincreasingreturntoscale? b. Inthelongrun,thewageis$3,andthepriceofcapitalis$1,iftheoutputamountis4,howmuch laborthisfirmwilluse?Howmuchcapitalthisfirmwilluse? c. Whatisthelongrunequilibriumprice?  Q3, Arepresentativefirmusescapitalandlabortoproducestudydesks.Thisfirmneedstopaythebillof utility(waterandelasticity)ifitwantstoproduce.Thetotalstipendonutilityis$2.Arepresentative firm’stechnologyis:  Q 2 L 2 K , MPK 1 K , MPL 1 L . HereQisquantityofoutput,LisquantityoflaborandKisquantityofcapital. a. Isthistechnologyconstant,decreasingorincreasingreturntoscale? b. IfthewageisS1,andpriceofcapitalis$1.Priceofstudydeskis$1.Howmanylaborswillthis firmhire?Howmanycapitalswillthisfirmuse? c. Whatistheoutputamountofthisfirm,whatistheprofitofthisfirm? d. Wage=$1,Priceofcapital=$1,thefirmwanttoproduceQamountofdesks,howmanylabors willthisfirmhire?Howmanycapitalswillthisfirmuse? e. Whatisthetotalcostintheshortrun? f. Whatisthetotalcostinthelongrun? g. TheMarginalcostinthelongrunisMC=Q/4,whatistheequilibriumpriceinthelongrun? h. P=1001 ­Qisthedemandcurve.Howmanyfirmsexistinthismarketinthelongrun?  ...
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