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Problem 1

Using Assignment 3's production for Joe's Pizzeria, we have the following table. Assume the wage rate for labor is $20 (w=20). Assuming perfect competition, calculate Joe's Value of Marginal Product for Labor (VMPL)

2213_Calculate Joes Marginal Revenue Product for Labor.png

a. Assume the wage rate for labor is $20 (w=20). What will be the optimum amount of Labor? (If VMPL are equal for two or more amounts of L, choose the highest). Why?

b. Suppose the wage rate falls to $7.50. How much will Joe choose?

Problem 2

Now assume that Joe's Pizza is a monopoly. Here is the table for Joe's Pizza.

943_Calculate Joes Marginal Revenue Product for Labor1.png

A) Calculate Joe's Marginal Revenue Product for Labor (MRPL). What is Joe's optimal level of L if w=$22.75? Why?

B) What would be Joe's optimal L if w=$20? Why?

Problem 3

a. Suppose you won a lottery and you have the choice of receiving a lump-sum payment of $700,000 now or 5 annual payments of $200,000 per year beginning next year. Assume that the interest rate is 5% per year. Which would be the better choice? Show your calculations.

b. Now suppose they offered a lump-sum payment of $800,000. Would that change your decision? Why?

c. Suppose the interest rate was 6% and the lump sum was $700,000. Would that change your decision? Why?

Macroeconomics, Economics

  • Category:- Macroeconomics
  • Reference No.:- M9443321
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