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Problem Set 4

# Problem Set 4 - Labor Market Equilibrium Human Capital 1...

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Labor Market Equilibrium Human Capital November 26, 2010 1. Suppose that the labor market supply curve is upward sloping and the labor demand curve is downward sloping. The study of economic trends over a particular time period reveals that wage recently fell while employment levels rose. Which curve must have shifted and in which direction to produce this effect? 2. Table 1 depicts the information for a non discriminating monopsonist. Assume that this firm sells its product for \$1 per unit in a perfectly competitive product market. The wage rate is given as w . Table 1: E 0 1 2 3 4 5 6 Q 0 13 25 34 42 46 48 w -- \$1 \$2 \$3 \$4 \$5 \$6 (a) How many workers will this firm choose to employ? (b) What will be its profit maximizing wage rate? (c) What is the profit of the firm? (d) If the firm was instead a wage taker, how many workers would this firm choose to employ? 3. Suppose that the marginal cost of hiring another worker is \$150, and the marginal cost of hiring current workers for an extra hour is \$10. The added output associated with an added worker, holding both capital and average hours per worker constant, is 120. The added output

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Problem Set 4 - Labor Market Equilibrium Human Capital 1...

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