1. Consider the production function given by Y = 10 1 k where I denotes number of workers and k denotes units of capital. The MPL = 10k and the MPK = 101. The prices of labor and capital are wloand wK, respectively. a. TRS .... b. The conditional labor demand is C. How will an increase in wk affect the labor demand in b? Explain
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- 1. Supose that·Total Factor Productivity increases·Capital depreciates by 10%Everything else equal, what happens to labor demand in the economy?A. It decreases (i.e. shifts to the left of the demand curve)B. It increases (i.e. shifts to the right of the demand curve)C. Not enough information to answer 2. Does an increase in the wage causes leisure always to increase, because leisure is a normal good?A. YesB. NoC. Only if the substitution effect dominates the income effectD. Only if the income effect dominates the substitution effectA proposal that is attracting increasing attention is a requirement that employers provide theirworkers with paid sick leave. This problem asks you to analyze the effects of such a policy on wages andemployment in normal times.a. How, if at all, would such a policy affect labor demand? (explain using MRP)b. How, if at all, would it affect labor supply? (explain using willingness to work)c. How, if at all, would the policy affect normal employment and the normal real wage (or is itnot possible to tell)? include graphs) Suppose there are two inputs in the production function-labor and capitaland that these two inputs are perfect substitutes. Suppose that the price of capital is 750 GHC per machine per week and that the weekly salary of each . worker is 300 GHC . i) Draw the isocost line ii) With the aid of a graph, explain the effect of a wage decrease on flrm-level employment and output holding initial cost ouday constant.
- Consider an economy with production function given by Y = AK0:5L0:5 where A is the total factorproductivity (TFP), K is the capital stock and L is the labor input. For simplicity assume capital is xed and equal to 1. Assume A=100.a. Write the rm's problem of choosing labor demand. Derive the demand for labor as a functionof the real wage.b. Assume labor supply is inelastic and xed at L= 100. Find the equilibrium values of the wageand the employment level for this economy. Display graphically the labor supply and the labordemand curves. Carefully label your graph.c. Suppose the economy faces a positive productivity shock and TFP is now A=200. Displaygraphically the new labor demand function. What are the equilibrium values of employment andthe real wage?d. Compute the total output when A=100 and when A=200. What is the output's growth rate?Compare that growth rate with the growth rate in A. How does the growth rate of output percapita compares to the growth rate in A? Explain…Explain the rule that proft-maximizing frms follow when they decide howmuch capital and labor to hire.What does the assumption of market clearing imply?(Explain) and Howapplicable is this assumption to the labour market in the longrun as well as the shortrun?
- Production function for firm is Ys=ln(Ld)Utility function is U(Yd, Ld)= Ys+ln(1-Ls)1) Write down maximization problem of firm and find labor demand curve2) Write down maximization problem of household and find labor supply curve3) Write down market clearing conditions4) Calculate equilibrium employment and real wage5) If the price is equal to $2, what would be the nominal wage in equilibriumNon-backward-bending labor supply curve. Consider an economy populated by 100 individuals who have identical preferences over consumption and leisure. In this economy the aggregate labor supply curve is upward-sloping. For simplicity, suppose that throughout this question that the labor tax rate is zero. a. For such a labor supply curve, how does the substitution effect compare with the income effect? b. Using indifference curves and budget constraints, show how such a labor supply curve arises.We are looking at a consumer who should choose how many hours she wants to work, and thus how much free time she gets. Let l symbolize working hours and f free time. The hourly wage is w, and there is a tax rate t on income. Let x be the amount of material goods, and p the price level. a) Explain how the consumer determines his work offer (desired number of working hours). b) What will be the effect on the labor supply of wage increases. Explain in particular what we mean by the substitution and income effect of the wage increase. c) The consumer receives a financial support of z kroner if the net market income is lower than a certain limit (y). Show on a figure what the budget line now looks like. How can the support be thought to affect the labor supply for (i) a consumer who without the support scheme would have an income below the limit, and (ii) a consumer who without the support would have an income above the limit.
- In a competitive labor market, an increase in theminimum wage results in a(n) _________ in thequantity of labor supplied and a(n) _________ in thequantity of labor demanded.a. increase; increaseb. increase; decreasec. decrease; increased. decrease; decreaseDerive the price-setting curve . What does the equation for the PS curve tell us about the ability of firms to make supernormal profits?. Explain in words why the decision of firms about what price to set has implications for the real wage in the economy. Provide two different explanations for why the PS curve might be flat .Imagine a firm that employs two types of workers – some with computer skills and others withno technology related skills. (i) Explain how a firm’s production function is related to its marginal product of labour, howa firm’s marginal product of labour is related to the value of its marginal product and how afirm’s value of marginal product is related to its demand for labour. (ii) Explain how the wage can adjust to balance the supply and demand for labour whilesimultaneously equalling the value of the marginal product of labour.