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    ECN 151A Wilson

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    ECN 151A Wilson

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
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    14 views6 pages

    ECN151A SQ2015 Midterm 2 Key

    Uploaded by

    a t
    ECN 151A Wilson

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
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    of 6
    Name: _ Yen Economies 1S1A { Spring 2015 Dr. Janine L.F. Wilson Midterm #2 Labor Demand and Labor Market Equilibrium ‘You will be given one hour and twenty minutes to complete this exam. Show all work. Credit will be given to correct answers only if there is back-up work. Be sure to label all axes. 1, Armed Inc. provides security services as their output (Q) with labor (L) and capital (K) according to the production function Q = 4EK?. The rental rate of capital is $96/hour. The price per unit of service is $2. The wage rate is $32/hour. Use this information for the remainder of the problem. a, Draw two isocost lines on the same graph, Draw one when the firm’s cost is $384 and the second one where the firm’s cost is $768. As always, label all intercepts, and label which line is which. Do not include extraneous lines on your graph. (4 points) pase par ener eresecren | res b. What is the definition of an isocost line (in words)? (2 mn Lane wpen winch the cost to the Geen is Ane same for the various Compinetion chinptts. ¢. What is the optimal mix of capital and labor if the firm is told by an outside agent that it cannot spend more than $720? (6 points) Tre optimal mix is Face a TS he Aanaena + een (SO@STS AN is a be in. where i =a Bee 7B OE = ag Paks He SKE plug int ot oun ou g CowE tt Re 1dIW(s 4b.” oe Oe) bE | Name: Economies 151A. Spring 2015 Dr. Janine L.F. Wilson 4. Suppose now that the firm is not constrained by anyone outside of the firm and can profit maximize. What is the optimal mix of capital and labor when the firm maximizes profit? How much will the firm spend? (8 points) VMPe =w VNR. er P.M oe A MLE db Ilo» 2E =4b 24 Udo EY €. Suppose the wage rate falls as a result of a recession, What will happen to the levels of capital and labor for the firm that maximizes profit in part d? Decompose each total effect into the relevant parts. Provide a brief ere oe “ each ay ment the total oni 6 Fig Eee Fall: SE. overs cale, cHeck eae Eee wv sss on cesar 1S Iau ative hay anw WoUS, on : see een Ke “on weet nue eos wit/ Subs i: Able Gas Co. is a mn ar an upward sloping to curve for é pipeline builders on their site in North Dakota (they are the only employer in the wil VEN, y area). a. Draw below, the labor market for Able Gas Co.? Label the equilibrium ‘wage, w* and level of employment, E*, Label each curve carefully. (6 = b. Iftwo more Gas Companies were built nearby, what would you expect to happen to the wages and the level of employment at Able Gas Co.? Why? (4 points) wld 3 il ne ee wouls ‘- ney _ We S tie" the VNYe is tot greater may Ae Wage 2 Economics 151A. Spring 2015 Dr. Janine L.F. Wilson 3. On April 6, 2014 the Huffington Post announced that President Obama would sign an executive order on “Equal Pay Day” that requires firms to allow their employees to share wage information with each other and requires federal contractors to report wage-related data so that the government can identify discrimination against workers based on gender, race, sexual orientation etc... in the workplace. a, If there were discrimination against people in the workplace as a result of their sexual orientation, show an example of where hiring would occur in the market below. Show both isoquant and isocost lines. (6 points) Name: E non-LOBT workers E LGB workers b. Why do we assume that a firm would go out aaa that discriminates against LGBT workers? « points) axe ono Monee Kocost [ine tna 4 Hon- Alserimna wah eas re A Shovaoule sh down (F @ t earlier Huffington Post article (January oie 2014) eo ing “Forty-two percent of gay individuals and 90 percent of transgender iduals say they have experienced some form of employment discrimination.” Would affirmative action in hiring solve this problem? Describe graphically and in words. Do you think this is a good idea? Why of why not? (8 points) “LF hiring 1S 5; Seca oRemakwe 6c eo well igerto aoe Set “| We wo, wos E Lest Wal Pe fe Ug He e pob| Name: Economics 151A Spring 2015 Dr. Janine L.F. Wilson 4. In February, the Economist Magazine published an article titled “Grim Prognosis” expressing the following concerns regarding the Affordable Care Act. “The CBO estimates that Obamacare will lower full-time employment by 2.3m in 2021, compared with what might have been without reform. That 2.3m drop is nearly three times larger than the CBO’s earlier estimate.” ‘There are many factors that could be reducing employment levels. For this question, assume that itis a result of the fact that all firms with more than 50 employees will face health insurance coverage for their workers as a mandated benefit. a. Ifthe CBO is correct, show below, a theoretical labor market before health insurance is mandated by the government and after health insurance is mandated by the government. Label carefully compensation to workers and costs to firms before and after the health insurance is mandated by the government. (8 points) H Cathet angel Sesofer wr bb. The study estimates that 2.3 million fewer people will be in the job market, asa result of this mandate. What is true about how people value employer provided health insurance if this statement is true? Does this, make sense to you? Why or why not?(6 points) \ue Wealth ib GVO ‘ne Han Woe wos o prov ing he $ pers healthcare... Yeo, costs ave Tsing IN RAIN Yes, wotkexs esc er inex po N oy py Pa oa es gas fans, 8 \S Name: Economies 151A Spring 2015 Dr. Janine LP. Wilson c. Before the Affordable Care Act was passed, many firms provided health insurance coverage voluntarily for their employees. Illustrate below a labor market where employers would offer health insurance coverage without a mandate. (8 points) Srey 4, The government felt the need to impose this mandated benefit, What are ‘two advantages and two disadvantages of a mandated benefit as it compares to a payroll tax? Explain. (8 points) i, MaNost ent asi dees cok leave as » Moe a ee TAL Saxe warket 2, Move ky ad eninistexed Vleficm is 4a p Or MAMI Miter, ii, Decco ers dest get benedit , anly _ wih 1. Thee could rao 4 " AMISH wor a mare Reset equate S coset Ares your goal Name: Economics 151A Spring 2015 Dr. Janine L.F. Wilson 5. The labor market for architects has “cobwebs” and is described initially by the labor supply curve w=10+6E, labor demand curve w=50-2E after which labor demand increases to w=70-2E. a. Give the original employment and wage levels and then two rounds of temporary equilibrium wage and employment levels. (6 points) S [w= oroel oO. lovee = 50-2 =40 #40, ~ Ditweao-ze) |: New Demand [w 250-26] where , = Cee 2 ie, we ms ck b. How do economists explain the delay in reaching the ultimate iS a ‘60 = loth equilibrium (what is going wrong)? (4 points) ~ Besults of \aloar s' My inelasticihy in Ane anort-run asia sult of need Sor education Ye - hod, brvers ieraaiandl \y estimet £ykure wages, c. Does Freeman (1976) find that cobwebs existed in the engineering market? How does he explain this persistent disequilibrium in his paper? Use the definition of adaptive expectations in your answer. (6 points) ee he Sinds Aat oo much weight lace don curve Wages when wosceors cali mate Gucture wages. ‘Gls she; co tor realize thet 8 fl ja = dnoo\ wi them will Mpa

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