tutorial 13 - monday - july 21, 2014 - 4pm - 5pm
TUTORIAL 13 - MONDAY - JULY 21, 2014 - 4PM - 5PM QUESTION 13.3 – p. 476 Suppose there are a fixed number of 1,000 identical firms in the perfectly competitive concrete pipe industry. Each firm produces the same fraction of total market output and each firm's production function for pipe is given by q = (KL)(1/2) and for this production function RTS (L for K) = K/L Suppose also that the market demand for concrete pipe is given by Q = 400,000 – 100,000P where Q is total concrete pipe. (a) If w = v = 1, in what ratio will the typical firm use K and L? What will be the long-run average and marginal cost of pipe? (b) In the long-run equilibrium, what will be the market equilibrium price and quantity for concrete price? How much will each firm produce? How much labour will be hired by each firm and in the market as a whole? (c) Suppose the market wage, rose to $2 while v remained constant at $1. How will this change the capital-labour ratio for the typical firm, and how will it affect its marginal costs? (d) Under the conditions of part (c), what will the long-run market equilibrium be? How much labour will now be hired by the concrete pipe industry? (e) How much of the change in total labour demand from part (b) to part (d) represents the substitutional effect resulting from the change in wage and how much represents the output effect? QUESTION 13.4 – p. 476 Suppose the demand for labour is given by L = - 50w + 450 and the supply is given by L = 100w where L represents the number of people employed and w is the real wage rate per hour.
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(a) What will be the equilibrium levels for w and L in this market? (b) Suppose the government wishes to raise the equilibrium wage to $4 per hour by offering a subsidy to employers for each person hired. How much will this subsidy have to be? (c) Suppose instead the government declared a minimum wage of $4 per hour. How much labour would be demanded at this price? How much unemployment would there be? (d) Graph your results. QUESTION 13.5 – p. 476 Assume that the market for rental cars for business purposes is perfectly competitive, with the demand for this capital input given by K = 1,500 – 25v and the supply given by K = 75v – 500 where K represents the number of cars rented by firms and v is the rental rate per day. (a) What will be the equilibrium levels for v and K in this market? (b) Suppose that following an oil embargo gas prices rise so dramatically that now business firms must take account of gas prices in their car rental decisions. Their demand for rental cars is now given by K = 1,700 – 25v – 300g where g is the per-gallon price of gasoline. What will be the equilibrium levels for v and K if g = $2? If g = $3? (c) Graph your results. (d) Since the oil embargo brought about decreased demand for rental cars, what might be the implication for other capital input markets as a result? For example, employees may still need transportation, so how might the demand for mass transit be affected? Since business people also rent cars to attend meetings, what might happen in the market for telephone equipment as employees drive less and use the telephone more? Can you think of any other factor input markets that might be affected?
Page 3 QUESTION 13.6 – pp. 476 - 477 Suppose that the supply curve for the labour to a firm is given by L = 100w and the marginal expense of labour curve is given by MEL = L/50 where w is the market wage. Suppose also that the firm's demand for labour (marginal revenue product) curve is given by L = 1,000 - 100MRPL (a) If the firm acts as a monopsonist (single buyer), how many workers will it hire in order to maximize profits? What wage will it pay? How will this wage compare to the MRPL at this employment level? (b) Assume now that the firm must hire its workers in a perfectly competitive labour market, but it still acts as a monopoly when selling its output. How many workers will the firm hire now? What wage will it pay? (c) Graph your results.
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(a) What will be the equilibrium levels for w and L in this market? (b) Suppose the government wishes to raise the equilibrium wage to $4 per hour by offering a subsidy to employers for each person hired. How much will this subsidy have to be? (c) Suppose instead the government declared a minimum wage of $4 per hour. How much labour would be demanded at this price? How much unemployment would there be? (d) Graph your results. QUESTION 13.5 – p. 476 Assume that the market for rental cars for business purposes is perfectly competitive, with the demand for this capital input given by K = 1,500 – 25v and the supply given by K = 75v – 500 where K represents the number of cars rented by firms and v is the rental rate per day. (a) What will be the equilibrium levels for v and K in this market? (b) Suppose that following an oil embargo gas prices rise so dramatically that now business firms must take account of gas prices in their car rental decisions. Their demand for rental cars is now given by K = 1,700 – 25v – 300g where g is the per-gallon price of gasoline. What will be the equilibrium levels for v and K if g = $2? If g = $3? (c) Graph your results. (d) Since the oil embargo brought about decreased demand for rental cars, what might be the implication for other capital input markets as a result? For example, employees may still need transportation, so how might the demand for mass transit be affected? Since business people also rent cars to attend meetings, what might happen in the market for telephone equipment as employees drive less and use the telephone more? Can you think of any other factor input markets that might be affected?
Page 3 QUESTION 13.6 – pp. 476 - 477 Suppose that the supply curve for the labour to a firm is given by L = 100w and the marginal expense of labour curve is given by MEL = L/50 where w is the market wage. Suppose also that the firm's demand for labour (marginal revenue product) curve is given by L = 1,000 - 100MRPL (a) If the firm acts as a monopsonist (single buyer), how many workers will it hire in order to maximize profits? What wage will it pay? How will this wage compare to the MRPL at this employment level? (b) Assume now that the firm must hire its workers in a perfectly competitive labour market, but it still acts as a monopoly when selling its output. How many workers will the firm hire now? What wage will it pay? (c) Graph your results.
