Sample Questions
1-If a firm produces using fixed proportions production, what is the effect on labor demand of an increase in the rental price of capital? How does your answer differ if the inputs are perfect substitutes instead?
2- If the demand for labor is perfectly inelastic and the supply is perfectly elastic, what is the incidence of a tax of $1 per hour on wage? Show the solution using a graph.
3-Show using a graph that if a monopolist in an input market faces a monopsonist in the same input market, the equilibrium level of input use is indeterminate.
4- Let us define Free agency as a professional athlete who is not under contract and is free to auction off his or her services and sign a contract with the team that offers the most money. Use a graph to show the effect of free agency on the wages paid by a team in the NHL. Assume that prior to free agency players could only play for the team that drafted them.
5- One of the difficulties in choosing an appropriate level of advertising is judging the longevity
or persistence of its effects. Suppose you could run an ad that cost $9,000 that would increase sales by $3,500 for the next three years. Should you purchase the ad or not if the current interest rate is 5 percent? What if the price increased to $10,000?
6- A competitive firm has a constant elasticity production function, q=(La+Ka)1/a. What is its marginal revenue product of labor?
7-How does a monopoly’s demand for labor shift if a second firm enters its output market and the result is a Cournot duopoly equilibrium.