Reference no: EM13848522

1. *Suppose demand for labor is given by

l = !50w + 450

and supply is given by

l = 100w,

where l represents the number of people employed and w is the real wage rate per hour.

(a) What will be the equilibrium levels for w and l in this market?

(b) Suppose the government wishes to raise the equilibrium wage to $4 per hour by o↵ering a subsidy to employers for each person hired. How much will this subsidy have to be?

What will the new equilibrium level of employment be? How much total subsidy will be paid?

(c) Suppose instead that the government declared a minimum wage of $4 per hour. How much labor would be demanded at this price?

How much unemployment would there be?

This question comes from Walter Nicholson's Microeconomic Theory Ninth Edition.

2. Your firm is considering two di↵erent workers to hire at a wage of $60K. Worker A has productivity $90K or $110K with equal  probability. Worker B has productivity $70K with probability 0.3 and $150 productivity with probability 0.7. Your firm needs the worker for five years. If Worker B turns out to be highly productive (productivity=$150K), competitor firms will realize this after three years and you will be forced to increase Worker B's salary in order to keep Worker B. Assume Worker B's new salary will be $150K. Which worker  should you hire? Does your answer change if the probability that Worker B is highly productive drops to 0.5? Does your answer change if competitors will learn Worker B's true productivity after two years instead of three?

3. Study Question #4 from Chapter 1 of Personnel  Economics in Practice.
Please turn in your homework at the beginning of lecture. You may discuss problems with classmates, but must turn in individual homework solutions. Please list classmates that you worked with on this homework.