Reference no: EM131094212

Economics 450 - Assignment 2

Q1. A monopolist faces the demand curve

P = 60 - .4Q

where Q is the annual quantity sold, and P is measured in dollars. Labor is the only input, and the labor supply curve is perfectly elastic at a wage of $2/hr. Using E to represent total hours worked, the production function is

Q = [10 E-5000]1/2

a. Find the profit-maximizing price and quantity.

b. Suppose a price ceiling of $35 is imposed. What is the new profit maximizing plan, and how much profit is made?

Q2. Major league baseball clubs generally have a local monopoly. The marginal cost of filling a seat at the ballpark is approximately zero. The typical fan buys hot dogs, peanuts, beer and souvenirs at concession stands in the ballpark, and the club receives the profits on these sales. The demand curve for seats is downward sloping.

a. Show, using a diagram, how the club would determine the profit-maximizing ticket price.

b. Analyze the effect of an increase in player salaries on the profit-maximizing ticket price.

Q3. An industry consists of 100 identical firms. It is impossible to establish additional firms since suitable sites for plants do not exist. The price of the product is $10, set in a competitive world market. Each firm has a production function given by

Q = 30L - 0.1L²,

where Q is output and L is labor.

Male and female workers are equally productive and sell their labor as perfect competitors according to

W_m = .025 L_m + 80, W_f = .10 L_f - 20

where the subscripts refer to male and female, and W_m and W_f are the respective weekly wages.

Find W_m, W_f, L_m, L_f and Q.

Q4. In 1999, 4,860 TANF recipients were asked how many hours they worked in the previous week. In 2000, 4,392 of these recipients were again subject to the same TANF rules and were again asked their hours of work during the previous week. The remaining 468 individuals were randomly assigned to a "Negative Income Tax" (NIT) experiment which gave out financial incentives for welfare recipients to work and were subject to its rules. Like the other group, they were asked about their hours of work during the previous week. The data from the experiment are contained in the table below

(a) What effect did the NIT experiment have on the employment rate of public assistance recipients? Develop a standard difference-in-differences table to support your answer.

(b) What effect did the NIT experiment have on the weekly hours worked of public assistance recipients who worked positive hours during the survey week? Develop a standard difference-indifferences table to support your answer.