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Question

13. Suppose a firm purchases labour in a competitive labour market and sells its product in a
competitive product market. The firm's elasticity of demand for labour is -0.4. Suppose the wage
increases by 5%. What will happen to the number of workers hired by the firm and to the marginal
productivity (MP) of the last worker hired by the firm?
A. The firm hires 2% fewer workers; the MP of the last hired worker increases by 5%.
B. The firm hires 2% more workers; the MP of the last hired worker increases by 10%.
C. The firm hires 5% fewer workers; the MP of the last hired worker increases by 2%.
D. The firm hires 10% more workers; the MP of the last hired worker decreases by 5%.
E. The firm hires 5% more workers; the MP of the last hired worker decreases by 2%.
O
14. There are 2 types of workers: native workers (N) and immigrants (1). The labour supply of
native workers is given by w = 8 + 0.125EN while the labour supply of immigrants is given by
w = 3 +0.5Er, where w is the market wage. Which of the following gives the aggregate supply of
labour?
A. W = 7+E
D. W = 7+0.1E
B. w = 11 + 0.625E
E. w = 11 + 0.125EN + 0.5Er
C. w = 8 +0.5E
En = w- 8
EJ =
w - 3
0. 125
0.5

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