Problem Set 7
1-3. See attached.
4. Question 2 assumes a fixed amount of debt over the lifetime of the project, regardless of the
value of the firm. Question 3 assumes a fixed ratio of debt to value over the lifetime of the
project. This means that the ac
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Problem 6 (4 points)
Jen, because of imperfect information, believes she has taken a low-risk job when in fact she has taken a
high-risk job. Let w stand for the wage
Problem 2 (6 points)
a) Initially, no payroll subsidy is in place. The labor supply curve is neither perfectly elastic nor perfectly
inelastic. The labor demand curve is neither perfectly elastic nor perfectly inelastic. Now, a payroll
subsidy to rms is i
Problem Set 3
a) No, the company should not buy access to the database, because the cash flows over the
next few years generate a negative NPV.
b) No - while this generates more positive cash flow, it still results in a negative NPV.
Government Antidiscrimination Policy
see Ehrenberg and Smith (pages 432-434)
Broadly speaking, the government has taken two somewhat conicting approaches to combat the causes
or effects of discrimination. One approach is to mandate nondiscrimin
Effects of expanded international trade on the demand for labor in the US
Because trade involves exchange, a countrys move toward greater international trade generally means
that both its imports and exports will increase. In 1970, the ratio of exports an
Problem 6 (6 points)
Assume all markets are perfectly competitive. Assume that isoquants are convex. The initial
level of output is go. The initial cost outlay is Co. The initial price of capital is m. The initial
wage is w. Now the wage falls to w]