Same fall although consumption must fall hours worked

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Unformatted text preview: eisure dominates the income effect. In this case, leisure increases and dominates the income effect. In this case, leisure increases rise, hours worked fall. same. fall. Although consumption must fall, hours worked may and fall, or remain the Although consumption must fall, hours worked may rise, fall, or remain the same. C F A E D B I1 G I2 H l Figure 4.3 Figure 2: 3. 1. The firm chooses its Canadian Nd so as toChapter 4, Problem 11. Suppose that the 1 Williamson, Third labor input Edition, maximize profits. When there is no government subsidizes employment. That is, the government pays the firm s units of consubsidy, profits for the firm are given by sumption goods for each unit of labor that the firm hires. Determine the effect of the subsidy d d on the firm’s demand for labor. . π = zF ( K , N ) − wN d The firm chooses its labor input N so as to maximize profits. top panel in That is, profits are the difference between revenue and costs. In theWhen there is no subsidy, profits for the firm are given by: Figure 4.7 the revenue function is zF ( K , N d ) and the cost function is the straight line, wNd. The firm maximizes profits byπ = zF (K, N dquantity of labor where the slope of the choosing the ) − wN d revenue function equals the slope of the cost function: That is, profits are the difference between revenue and costs. In the top panel in Figure 3 MPN = is the revenue functionw .zF (K, N d ) and the cost function is the straight line, wN d . The firm The firm’s demand for labor curve is the marginal product of labor schedule in the 3 bottom panel of Figure 4.7. With an employment subsidy, the firm’s profits are given by: amount of the subsidy, s. In the top panel of Figure 4.7, the subsidy acts to shift down the cost function for the firm by reducing its slope. As before, the firm will maximize profits by choosing the quantity of labor input where the slope of the revenue function is equal to the slope of the cost function, (t-s), so the firm chooses the quantity of...
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This document was uploaded on 02/07/2014.

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