Homework #2 – Solutions
1 . Union A wants to stand for workers within a firm that could hire 20, 000 employees if the salary rate is definitely $12 and would work with 10, 000 workers if the wage price is $15. Union B wants to stand for workers within a firm that could hire 40, 000 personnel if the salary is 20 dollars and could hire thirty-three, 000 workers if the income is $15. Which union is likely to plan?
The union will be more more likely to attract the workers' support when the firmness of labor demand (in absolute value) is small. The suppleness of labor demand facing union A is given by simply:
%E (20, 000 10, 000) 20, 000
(12 15) 12
The suppleness of labor demand facing union B is given simply by:
%E (33, 000 30, 000) 33, 1000
0. forty five
(15 20) 15
Union B, therefore , is more likely to arrange as |-0. 45| < |-2|.
2 . Consider a organization for which development depends on two normal inputs, labor and capital, with prices t and r, respectively. Primarily the organization faces industry prices of w sama dengan 6 and r sama dengan 4. The costs then change to w = 4 and r = installment payments on your
(a) In which direction does the substitution effect change the firm's employment and capital share? Prior to the price shift, the value of the slope in the isocost line (w/r) was 1 . a few. After the selling price shift, the slope can be 2 . Put simply, labor is becoming relatively more pricey than capital. As a result, you will see a alternative away from labor and to capital (the substitution effect). (b) In which direction does the scale effect change the business's employment and capital stock? Because the two prices fall, the limited cost of production falls, plus the firm will want to expand. The size effect, therefore , increases the demand for both labor and capital (as the two are normal inputs). (c) Can we say conclusively whether the company will use more or less labor? Pretty much capital? The firm will surely use even more capital as the alternative and scale effects strengthen each other in the direction of using more...