tutorial 14 - wednesday - july 23, 2014 - 4pm - 5pm
TUTORIAL 14 - WEDNESDAY - JULY 23, 2014 - 4PM - 5PM QUESTION 13.7 – p. 477 Carl the clothier owns a large garment factory on a remote island. Carl's factory is the only of employment for most of the islanders, and thus Carl acts as a monopsonist. The supply curve for the garment workers is given by L = 80w and the marginal-expense-of-labour curve is given by MEL = L/40 where L is the number of workers hired and w is their hourly wage. Assume also that Carl's labour demand (marginal value product) curve is given by L = 400 – 40MVPL (a) How many workers will Carl hire in order to maximize his profits, and what wage will he pay? (b) Assume now the government implements a minimum-wage law covering all garment workers. How many workers will Carl now hire, and how much unemployment will there be if the minimum wage is set at $3 per hour? $3.33 per hour? $4 per hour? (c) Graph your results. (d) How does the imposition of a minimum wage under monopsony differ in results from a minimum wage imposed under perfect competition (assuming the minimum wage is above the market-determined wage)?
QUESTION 13.8 – p. 477 The Ajax Coal Company is the only employer in its area. It can hire any number of female workers or male workers it wishes. The supply curve for women is given by Lf = 100wf MEf = Lf/50 and for men by Lm = 9wm2 MEm = (1/2)(Lm)1/2
Page 2 where wf and wm are, respectively, the hourly wage rate paid to female and male workers. Assume that Ajax sells its coal in a perfectly competitive market at $5 per ton and that each worker hired (both men and women) can mine two tons per hour. If the firm wishes to maximize profits, how many female and male workers should be hired and what will the wage rates for these two groups be? How much will Ajax earn in profits per hour on its mining machinery? How will that result compare to one in which Ajax was constrained (say, by market forces) to pay all workers the same wage based on the value of their marginal products? QUESTION 13.9 – p. 477 Mrs. Smith has a guaranteed income of $10 per day from an inheritance. Her preferences require her always to spend half her potential income on leisure (H) and consumption (C). (a) What is Mrs. Smith's budget constraint in this situation? (b) How many hours will Mrs. Smith devote to work and to leisure in order to maximize her utility, given that her market wage is $1.25? $2.50? $5.00? $10.00? (c) Graph the four different budget constraints and sketch in Mrs. Smith's utility-maximizing choices. (Hint: When graphing budget constraints, remember that when H = 24, C = 10, not 0.) (d) Graph Mrs. Smith's supply-of-labour curve. QUESTION 13.10 – p. 477 How will Mrs. Smith's supply-of-labour curve (calculated in part (d) of Problem 13.9) shift if her inheritance increases to $20 per day? Graph both supply curves to illustrate this shift.
QUESTION 13.8 – p. 477 The Ajax Coal Company is the only employer in its area. It can hire any number of female workers or male workers it wishes. The supply curve for women is given by Lf = 100wf MEf = Lf/50 and for men by Lm = 9wm2 MEm = (1/2)(Lm)1/2
Page 2 where wf and wm are, respectively, the hourly wage rate paid to female and male workers. Assume that Ajax sells its coal in a perfectly competitive market at $5 per ton and that each worker hired (both men and women) can mine two tons per hour. If the firm wishes to maximize profits, how many female and male workers should be hired and what will the wage rates for these two groups be? How much will Ajax earn in profits per hour on its mining machinery? How will that result compare to one in which Ajax was constrained (say, by market forces) to pay all workers the same wage based on the value of their marginal products? QUESTION 13.9 – p. 477 Mrs. Smith has a guaranteed income of $10 per day from an inheritance. Her preferences require her always to spend half her potential income on leisure (H) and consumption (C). (a) What is Mrs. Smith's budget constraint in this situation? (b) How many hours will Mrs. Smith devote to work and to leisure in order to maximize her utility, given that her market wage is $1.25? $2.50? $5.00? $10.00? (c) Graph the four different budget constraints and sketch in Mrs. Smith's utility-maximizing choices. (Hint: When graphing budget constraints, remember that when H = 24, C = 10, not 0.) (d) Graph Mrs. Smith's supply-of-labour curve. QUESTION 13.10 – p. 477 How will Mrs. Smith's supply-of-labour curve (calculated in part (d) of Problem 13.9) shift if her inheritance increases to $20 per day? Graph both supply curves to illustrate this shift.
