Labor Economics Assignment Answers for Economics 150A - Spring 2008, Assignments of Music

Download Labor Economics Assignment Answers for Economics 150A - Spring 2008 and more Assignments Music in PDF only on Docsity! 1 Economics 150A - Labor Economics Assignment #4 - Answers Spring 2008 Question 1 Suppose there are two inputs in the production function – labor and capital – and that these two inputs are perfect substitutes. The existing technology permits one machine to do the work of three persons. The firm wants to produce 100 units of output. Suppose that the price of capital is $750 per machine per week and that the weekly salary of each worker is $300. (a) Which combination of inputs should the firm use? Q = 100 r = 750 w = 300 slope of the isoquant is –1/3 slope of the isocost is –2/5 The isocost is steeper than the isoquant so use all capital. (b) Suppose that a worker’s weekly salary is $225. Which combination of inputs should the firm use? Q = 100 r = 750 w = 225 slope of the isoquant is –1/3 slope of the isocost is –3/10 The isocost is flatter than the isoquant so use all labor. K L Isocost Isoquant 2 (c) What is the elasticity of labor demand as the wage falls from $300 to $225? ( ) 0 % 0 225 300% 300 D a positive number L w η − Δ = = = ∞ −Δ Question 2 In the land of Oz the labor demand and supply schedules are as follows: wLandwL DS 20019001001000 −=+= (a) What are the equilibrium wage and employment levels? In equilibrium: 1000 1000 1900 200 300 900 3 1300 w w w w L + = − = = ⇒ = (b) At the equilibrium point, is labor demand or labor supply more elastic? 100 0.23 1000 100 200 0.46 1900 200 S D S SL D DL L w w w wL L w w w wL η η ∂ ⎛ ⎞= × = × =⎜ ⎟∂ +⎝ ⎠ ∂ ⎛ ⎞= × = − × = −⎜ ⎟∂ −⎝ ⎠ Labor demand is more elastic; although both are quite inelastic. K L Isocost Isoquant