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Pam has a weekly unearned income of $200 (which comes from winning a beauty contest). She works 30 hours a week (out of a maximal 100 hours in the week) at a wage rate of $10. Her wage increases to $14/hour. Pam has a compensated wage elasticity of 0.4 and an income elasticity of -0.5.
a) Find the percentage increase in Pam's wage rate due to this wage change. Write down the formula for calculating an uncompensated wage elasticity from the compensated wage elasticity and the income elasticity.
b) Calculate Pam's uncompensated wage elasticity. Is it positive or negative? What does this say about the relative sizes of the income and substitution effects?
c) What is the percentage change in hours worked due to the substitution effect and the income effect of the wage increase?
Determine the output level, price, and profits that will occur in long-run equilibrium. Assume a high-price, low-output scenario assuming a parallel shift of the firm's demand curve. Be sure to explain what you are doing and why.
The Acme chemical company paid $45000 for research equipment, which it believes will have zero salvage value at the end of its 5 year life. If the straight line (SL) method is used, what will be its value after 2 years
Briefly explain whether you agree with the student's reasoning.
Bruno's Lunch Counter is expanding and expects operating cash flows of $26,000 a year for 4 years as a result. This expansion requires $39,000 in new fixed assets. These assets will be worthless at the end of the project.
A firm faces the following average revenue (demand) curve: P = 120 - 0.02Q where Q is weekly production and P is price, measured in cents per unit. The firm's cost function is given by C = 60Q + 25,000.
The Federal Reserve Banks sell $3 billion in securites to members of the public, who pay for the bonds with checks. Show the new balance sheet for commercial banks if reserves = 33, securites = 60, checkable deposits = 150, and reserve banks = 3.
Also assume that the firm faces competitive input and product markets and that the two inputs are gross complements in production. Show graphically the long-run labor demand as the wage increases. What happens to long-run demand for capital? Be su..
A delivery company is considering adding another vehicle to its delivery fleet, all the vehicles of which are rented for $100 per day. Assume that the additional vehicle would be capable of delivering 1500 packages per day and that each package th..
Although this is an admittedly simple model, it illustrates some issues that policy mak- ers need to think about when changing fiscal policy (e.g. a reduction in the budget deficit through a reduction in government spending). Explain in words what..
Cinema Theater has estimated the following demand functions for its movies: Daytime demand, QD = 400 - 50 PD Nighttime demand, QN = 200 - 20 PNThe marginal cost of serving another customer is $5 and its fixed costs are $100.
Suppose nominal GDP in 1999 was $100 billion and in 2001 it was $260 billion. The general price index in 1999 was 100, and in 2001 it was 180. Between 1999 and 2001, the real GDP rose by what percent.What is the unemployment rate in the United Stat..
Ellen purchased a used car for $10, 000. She wrote a check $2,000 as a down payment for the car and financed the $8,000 balance. The annual percentage rate (APR) is 9% compounded monthly, and the loan is to be repaid in equal monthly installments.
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