Transcript Week 9 - Lancaster University

ECON 101 Tutorial: Week 9
Shane Murphy
[email protected]
Office Hours: Monday 3:00-4:00 – LUMS C85
Outline
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Roll Call
Motivation
Problems
Discussion
Motivation
Exercise 1
Let P = 130 – (q1 + q2)
Let MC1 = MC 2 = 10
a) If Firm 1 sets q1=40, what is the demand and
revenue function for firm 2? What is marginal
revenue for firm 2? What is firm 2’s best
response?
b) Now do the same for any value of q1.
c) Do part b again but assume that competition is on
prices (Bertrand).
d) What is the stackelberg outcome? What is the
competitive outcome? What is the single firm
monopoly outcome?
Exercise 1 – What you need to know
How to solve a Cournot model:
Set P = 130 – (q1+q2)
So TR1 = [130 – (q1+q2)]q1
TR1 = 130q1 – q1^2 – q2q1
And find MR
MR1 = 130 – 2q1 – q2
Set MC = MR
10 = 130 – 2q1 – q2
Solve: q1 = (120 – q2)/2
Since q1=q2, we have q1 = (120 – q1)/2
Solve for q1, q1 = 40.
So q2 = 40, p – 50, profit1 = profit2 = 1600
Exercise 1 – What you need to know
How to solve a Bertrand and perfectly competative
model:
Set P = MC
P = 10, Q = 120, profits = 0
How to solve a monopoly
You probably do not need to solve a stackelberg –
but recognize that the firm that goes first produces
more output and gets greater profit.
Exercise 2 a)
What is the relationship between marginal product
of labor and marginal cost of production?
a) They are always equal since labor and production
are the two essential factors of production in our
models
b) The optimal output occurs where they intersect
since marginality is the optimality condition
c) They are inversely related since diminishing
returns in production imply rising marginal cost
for a given wage
d) None of the above since Shane is too lazy to come
up with another option
Exercise 2 b)
What is the equation relating marginal product of
labor, marginal cost of production, and wage?
a) Wage = MPL^a * MCP^b
b) Wage – MPL = profit – MCP
c) Wage/MCP = MPL
d) None of the above since Shane is too lazy to come
up with another option
Exercise 3a)
Which of the following do not cause a labor demand
curve to shift?
a) Output price
b) Technological change
c) Rise in supply of complementary inputs will
increase labor demand
d) Rise in supply of substitute inputs will reduce
labor demand
e) Increased minimum wage
Exercise 3b)
Which of the following do not cause a labor demand
curve to become more elastic (flatten)?
a) Higher price elasticity of demand for final product
b) Greater elasticity of supply in other factors of
production
c) Greater ease of substitution between labor and
other inputs
d) Lower price elasticity of demand for final product
Exercise 4) Ch 17 q4)
If there are two types of workers, those with computer
skills and those without, what will result if computers
become more useful and more important to profit and
productivity?
a) Workers with cpu skills will have increased MP,
shifting demand for these workers to the right and
increasing wages for those with cpu skills.
b) Workers without cpu skills will have increased MP,
shifting demand for these workers to the right and
increasing wages for those without cpu skills.
c) All workers will see an increase in wages.
d) Workers without cpu skills will see an increase in
their value as some of their number go back to
school to train in cpu skills.
Exercise 5a)
Which of the following do not cause a labor supply
curve to shift?
a) Changes in non-labor income that are
independent of wage ie lump-sum welvare
payments
b) Changes in property income
c) Lottery wins
d) Inheritances
e) Divorce payments
f) Grants
g) Changes in labor demand
Exercise 5b)
Which of the following do not cause a labor supply
curve to become more inelastic (steeper)?
a) Changes in wage rate
b) Changes in income tax rates
c) Change in taste for work
d) Change in overtime premia
e) Change in labor demand
Exercise 7) Ch 17 q9)
Which of the following is a reason minimum wage
distorts the labor market for teenagers more than for
adults.
a) Teenagers have a lower value of marginal product
so it is more likely that the minimum wage will be
above their value of marginal product
b) The demand for teenage labor is more elastic
than for adult labor, so the minimum wage law
distorts the market more
c) Both
d) Neither
Exercise 8)
The Nasty Party gets into government and decides to
cut lump-sum unemployment benefits. Show the
likely effects on an income-leisure diagram. Does
labor supply rise or fall?
Rises
Discussion Exercise 7) Ch17 q8)
University students sometimes work as summer
interns for private firms of the government. Many
of these positions pay little or nothing.
a) What is the opportunity cost of taking such a
job?
b) Explain why students are willing to take these
jobs.
c) If you were to compare the earnings later in life
of workers who had worked as interns and those
who had taken summer jobs that paid more,
what would you expect to find?