Download Discussion Session 5

Discussion Session 5
Labor markets
• 1) Suppose a firm with some market power faces a downward-sloping
demand curve for customized mugs. Fill in the table below.
Quantity
of Labor
Quantity
of Output
Marginal
Product
of Labor
Price of
Output
5
60
13
10
100
11
15
130
9
20
150
8
25
160
7
30
165
6
Total
Revenue
Marginal
Revenue
Marginal
Revenue
Product
of Labor
Labor markets
• 1) Suppose a firm with some market power faces a downward-sloping
demand curve for customized mugs. Fill in the table below.
Quantity
of Labor
Quantity
of Output
Marginal
Product
of Labor
Price of
Output
5
60
12
13
10
100
8
11
15
130
6
9
20
150
4
8
25
160
2
7
30
165
1
6
Total
Revenue
Marginal
Revenue
Marginal
Revenue
Product
of Labor
Labor markets
• 1) Suppose a firm with some market power faces a downward-sloping
demand curve for customized mugs. Fill in the table below.
Quantity
of Labor
Quantity
of Output
Marginal
Product
of Labor
Price of
Output
Total
Revenue
5
60
12
13
780
10
100
8
11
1100
15
130
6
9
1170
20
150
4
8
1200
25
160
2
7
1120
30
165
1
6
990
Marginal
Revenue
Marginal
Revenue
Product
of Labor
Labor markets
• 1) Suppose a firm with some market power faces a downward-sloping
demand curve for customized mugs. Fill in the table below.
Quantity
of Labor
Quantity
of Output
Marginal
Product
of Labor
Price of
Output
Total
Revenue
Marginal
Revenue
5
60
12
13
780
13
10
100
8
11
1100
8
15
130
6
9
1170
2.33
20
150
4
8
1200
1.5
25
160
2
7
1120
-8
30
165
1
6
990
-26
Marginal
Revenue
Product
of Labor
Labor markets
• 1) Suppose a firm with some market power faces a downward-sloping
demand curve for customized mugs. Fill in the table below.
Quantity
of Labor
Quantity
of Output
Marginal
Product
of Labor
Price of
Output
Total
Revenue
Marginal
Revenue
Marginal
Revenue
Product
of Labor
5
60
12
13
780
13
156
10
100
8
11
1100
8
64
15
130
6
9
1170
2.33
14
20
150
4
8
1200
1.5
6
25
160
2
7
1120
-8
-16
30
165
1
6
990
-26
-26
Labor markets
• 1) Suppose a firm with some market power faces a downward-sloping
demand curve for customized mugs. Fill in the table below.
Quantity
of Labor
Quantity
of Output
Marginal
Product
of Labor
Price of
Output
Total
Revenue
Marginal
Revenue
Marginal
Revenue
Product
of Labor
5
60
12
13
780
13
156
10
100
8
11
1100
8
64
15
130
6
9
1170
2.33
14
20
150
4
8
1200
1.5
6
25
160
2
7
1120
-8
-16
30
165
1
6
990
-26
-26
• If the market wage is $30, how many workers will this firm hire?
Labor markets
• 1) Suppose a firm with some market power faces a downward-sloping
demand curve for customized mugs. Fill in the table below.
Quantity
of Labor
Quantity
of Output
Marginal
Product
of Labor
Price of
Output
Total
Revenue
Marginal
Revenue
Marginal
Revenue
Product
of Labor
5
60
12
13
780
13
156
10
100
8
11
1100
8
64
15
130
6
9
1170
2.33
14
20
150
4
8
1200
1.5
6
25
160
2
7
1120
-8
-16
30
165
1
6
990
-26
-26
• If the market wage is $30, how many workers will this firm hire?
Labor markets
• 1) Suppose a firm with some market power faces a downward-sloping
demand curve for customized mugs. Fill in the table below.
Quantity
of Labor
Quantity
of Output
Marginal
Product
of Labor
Price of
Output
Total
Revenue
Marginal
Revenue
Marginal
Revenue
Product
of Labor
5
60
12
13
780
13
156
10
100
8
11
1100
8
64
15
130
6
9
1170
2.33
14
20
150
4
8
1200
1.5
6
25
160
2
7
1120
-8
-16
30
165
1
6
990
-26
-26
• If the market wage is $30, how many workers will this firm hire?
• 10 workers
Key economic policy issues – Public Goods
• 2) Suppose a town benefits from public parks. There are 3 households in the
town. The marginal benefit for each households are in the table below.
Quantity of
Parks
MB for
household A
MB for
household B
MB for
household C
1
2
3
60,000
45,000
40,000
30,000
26,000
20,000
10,000
9,000
5,000
4
33,000
18,000
4,000
Marginal
Benefit for the
town
• If the cost of building each park is 60,000, how many parks will this town build?
Key economic policy issues – Public Goods
• 2) Suppose a town benefits from public parks. There are 3 households in the
town. The marginal benefit for each households are in the table below.
Quantity of
Parks
MB for
household A
MB for
household B
MB for
household C
Marginal
Benefit for the
town
1
2
3
60,000
45,000
40,000
30,000
26,000
20,000
10,000
9,000
5,000
100,000
80,000
65,000
4
33,000
18,000
4,000
55,000
• If the cost of building each park is 60,000, how many parks will this town build?
Key economic policy issues – Public Goods
• 2) Suppose a town benefits from public parks. There are 3 households in the
town. The marginal benefit for each households are in the table below.
Quantity of
Parks
MB for
household A
MB for
household B
MB for
household C
Marginal
Benefit for the
town
1
2
3
60,000
45,000
40,000
30,000
26,000
20,000
10,000
9,000
5,000
100,000
80,000
65,000
4
33,000
18,000
4,000
55,000
• If the cost of building each park is 60,000, how many parks will this town build?
3 parks
Key economic policy issues - Externalities
• 3) After September 11, the media paid closer attention to the
potential use of shipped cargo containers to smuggle weapons and
terrorists into the United States.
• a. Discuss why there may be a negative externality associated with
the use of shipping containers.
• b. Graphically show the market for ship transportation of cargo. Make
sure you include all the relevant aspects of this market, given your
answer to part (a).
• c. Graphically show any deadweight loss that occurs in this market.
• d. Discuss how taxes can help eliminating deadweight loss in this
market.
Bond Pricing and Present Value
• How much would you be willing to pay for a bond that has a face
value of $1,000, a coupon of 5%, and a maturity of 5 years, if the
current market rate, i.e. the yield, is 5%.
• $1000
• What is the price of a three-year bond with a face value of $1,000, a
coupon of 5%, and a yield of 10%? Call this Bond A.
• $876
Bond Pricing and Present Value
• Minutes after you buy Bond A you receive news that makes you
believe market rates will change in Year 3 to 5%. What is a fair price
for this bond now?
• $913
• Ignoring any change in market expectations, what will the bond be
worth after one year?
• $913