S 5 2. Consider the Krugman: Let p be price of a product, w wage, L population, a fixed unit laborrequirement, ß productivity, c consumption per capita of a product, q supply quantity of a firm,and N number of products (or firms). Suppose the price elasticity of demand, n, is smaller athigher levels of c. Pricing rule (PP) and zero profit condition (ZZ) are given by:η(PP) Pw B(n-1)'(ZZ)Р a 1W Lc ß2|3How would the closed-economy equilibrium change if fixed cost of entry, a, were larger? Usethe graph with PP and ZZ schedules, and explain how in the new equilibrium, consumption percapita of a product, supply quantity of a product, price of a product relative to wage, and numberof product varieties change. Provide intuition for your results.

Please find the answer below. KRUGMAN MODEL: This model uses economies of scale, differentiated…

How would the closed-economy equilibrium change if fixed cost of entry, a, were larger? Use the graph with PP and ZZ schedules, and explain how in the new equilibrium, consumption per capita of a product, supply quantity of a product, price of a product relative to wage, and number of product varieties change. Provide intuition for your results.

How would the closed-economy equilibrium change if fixed cost of entry, a, were larger? Use the graph with PP and ZZ schedules, and explain how in the new equilibrium, consumption per capita of a product, supply quantity of a product, price of a product relative to wage, and number of product varieties change. Provide intuition for your results.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter9: Production Functions

Section: Chapter Questions

Problem 9.5P

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Consider the market for labor where both firms and workers are price takers. Output is produced using capital and labor.The marginal product of labor can be described by: 200 – 4L, where L is the number of workers hired. The price of the good produced is 5 per unit. a. Illustrate the demand for labor. Be sure to note the specific value of the vertical intercept. b. Suppose that the competitive firm must pay 100 for each worker. Determine the number of workers hired. (Determine the total income to capital. Show your work for both parts. c. Suppose that the price of the good rises but that the wage remains the same. Illustrate how the optimal choice of labor would change. No need to do the explicit calculation; just show the outcome and briefly explain.
A firm faces perfectly elastic demand for its output at a price of $6 per unit of output. The firm, however, faces an upward-sloping labor supply curve of E = 20w - 120 where E is the number of workers hired each hour and w is the hourly wage rate. Thus, the firm faces an upward-sloped marginal cost of labor curve of MCE = 6 + 0.1E Each hour of labor produces five units of output. How many workers should the firm hire each hour to maximize profits? What wage will the firm pay? What are the firm’s hourly profits?
Suppose that the demand for electricians in a particular town can be given by the equation: L = 10,000 - 20W where L = the number of hours of electrician services and W = the hourly wage rate for electricians. a. What is the own-wage elasticity of demand for electricians when W = $125 per hour -- the equilibrium wage rate? b. Is the demand curve elastic or inelastic at this point? c. How will Aggregate Earnings of electricians be affected by a 10% increase in wages from this equilibrium point? d. What effect will each of the following have on the own-wage elasticity of demand for electricians at the equilibrium wage? i. An increase in the price elasticity of demand for electrical services ii. An increase in the equilibrium wage (with the same labor demand curve specified in this problem) iii. A dramatic increase in handymen in this town (which can be thought of as substitutes in the production for electricians)
Consider the general supply function: Qs=60+5p-12Pl+10F Where Qs = quantity supplied, p = price of the commodity, pl = price of a key input in the production process, and F = number of firms producing the commodity. 1. Interpret the slope parameters on p, pl, ane F. 2. Derive the equation for the supply function when pI = $90 and F = 20. 3. Sketch the graph of the supply function in part b. At what price does the supply curve intersect the price axis? Give an interpretation of the price intercept of this supply curve. 4. Using the supply function from part b, calculate the quantity supplied when the price of the commodity is $300 and $500.
Consider the labour market for farms during the harvest season. Assume the market is perfectly competitive, with a labour demand function QD = 10-P and a labour supply function QS = 3P, where P is the wage. a) What are the consumer (farm owners) surplus and producer (farm workers) surplus in equilibrium? b) What is the price elasticity of demand at the equilibrium? c) Suppose the government subsides the farm owners (consumers) $1 for every unit of labour purchased. Then, compute the quantity of labour traded in the market, the wage received by the workers and the wage paid by the farm owners. d) Calculate the consumer surplus and producer surplus in the presence of the subsidy in part c).
A company called Tramlaw has become the only employer in the local market for retail labor. The marginal value (extra profit before wages) of hiring an additional worker-hour is ?? = 60 − ?, where ?? is marginal value and ? is the hours of labor worked. The supply of workers is given as ? = ? 2 , where ? is the wage (the price of labor). Assume Tramlaw pays all retail workers in this market the same wage. For parts (a) and (b), ignore the numbers and equations (though you could use the equations as hints). a. Explain in words why Tramlaw’s marginal cost of hiring an additional worker-hour is higher than supply, which represents the marginal cost to the worker of providing an additional hour of labor. b. Draw a market diagram of Tramlaw’s local labor monopsony, including marginal value (MV), supply (S), and marginal cost (MC). Graphically indicate the monopsonist’s profit-maximizing quantity of labor ??, wage ??, the efficient quantity of labor ? ∗ , and any deadweight loss (DWL)…
onsider the supply function: Qs = 60 + 5P – 12 PI + 10F , Where Qs = quantity supplied, P = price of the commodity, PI = price of a key input in the production process, and F = number of firms producing the commodity. Interpret the slope parameters on P, PI, and F. Derive the equation for the supply function when PI =$90 and F = 20. Sketch a graph of the supply function in part b. At what price does the supply curve intersect the price axis? Give an interpretation of the price intercept of this supply curve. Using the supply function from part b, calculate the quantity supplied when the price of the commodity is $300 and $500. Derive the inverse of the supply function in part b. using the inverse supply function; calculate the supply price for 680 units of the commodity. Give an interpretation of the supply price.
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Consider worker 1 with non-labour income Y facing a wage offer w and a utility function defined over consumption and leisure. U(c,l) = lnC + 4lnl Derive worker’s uncompensated labour supply function (for labour market participants and non-participants) and the uncompensated labour supply elasticity (for labor market participants) with respect to wage as a function of non-labour income and wage.
Suppose that in a competitive output market, firms hire labor from a competitive labor market (so that the profit maximization conditions for hiring labor are as we discussed in class). If the demand for the product these firms sell increases, so that the market price of this product increases, we would expect which of the following regarding the equilibrium wage, W, and the equilibrium quantity of labor, L, employed? Group of answer choices a) a decrease in W and no change in L b) a decrease in W and a decrease L c) an increase in W and a decrease L d) a decrease in W and an increase L e) an increase in, W, and an increase in L
A firm faces a perfectly elastic demand for its output at a price of $6 per unit of output. The firm, however, faces an upward-sloped labor supply curve ofE = 20w - 120where E is the number of workers hired each hour and w is the hourly wage rate. Thus, the firm faces an upward-sloped marginal cost of labor curve ofMCE = 6 + 0.1EEach hour of labor produces five units of output. How many workers should the firm hire each hour to maximize profits? What wage will the firm pay? What are the firm’s hourly profits?