Econ 202B Mock Exam: Labor Markets, Union Bargaining, Consumption, Investment, Exams of Economics

Download Econ 202B Mock Exam: Labor Markets, Union Bargaining, Consumption, Investment and more Exams Economics in PDF only on Docsity! Econ 202b Mock Exam (Do three out of four) 1. Efficiency Wages. Suppose that there are a fixed large number N of identical competitive firms each of which seeks to maximize its profits: π = Y – wL Suppose further that each firm’s output depends multiplicatively on the number of workers it hires and on the average effort of workers: Y = F(eL), F’ > 0, F” < 0 And that the effort of workers is a function only of their real wage: e = e(w), e’ > 0 A. What can you say in general about the firm’s labor demand? Is there any reason to expect this economy to be at full employment? B. Suppose that e(w) = w2 for 0 ≤ w ≤ 1, that e(w) = 4w – w2 – 2 for 1 ≤ w ≤ 2, and that e(w) = 2 for 2 ≤ w. What will the prevailing real wage be in this economy? C. Does increasing the number of firms in such an economy ever have an impact on the real wage? Why or why not? 2. Union Bargaining. Suppose that workers are represented by a union with the objective function: [U(w) – D]L + U(wu)(N-L) Where U is some increasing function of the income of the relevant group of workers, w is the wage received by those hired by the representative firm, wu is the unemployment benefit paid to those not hired by the representative firm, D is the disutility of work, L is the level of employment, and N is the level of the labor force. Suppose that the representative firm’s profits are: ALα/α – wL, A>0, 0 < α < 1 Where A is stochastic, and α is known and fixed. The union sets the wage w after A is known, and the firm then chooses L to maximize its profits given w and A.