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A simple model of search. Consider an agent who lives two periods. He is unemployed at the beginning of the first period and has a wage offer of w. If he accepts the wage offer w, he will work forever at that wage. If he rejects the offer, he receives an unemployment benefit of 4 dollars this period and he gets to draw a new offer next period. There are only two possible offers with equal probability next period: one wage offer of 8 dollars, and another offer of 24 dollars. The worker’s objective is to maximize the sum of expected discounted earnings. The discount factor β is 0.5.
(a) How much would the agent value today a dollar tomorrow? (Hint: use the concept of discount factor).
(b) What is the expected value of the potential offers?
(c) What is the value for the worker if he accepts the current offer w? (d) What is the value for the worker if he rejects the current w?
(e) What is his reservation wage?
Suppose that for a firm that digs ditches for laying cable or pipeline, backhoes and backhoe operators are pure complements in production, being used on a one-for-one basis. Draw the isoquants (on a graph with backhoe, “K”, and backhoe operators, “E”..
According to the information/decision-making theory:
After allowing for sleep and personal care, she has 70 free hours each week and must split these hours between work to earn money.
When the average total cost curve is rising, then the marginal cost curve will be?
Explain how each change mentioned in the article impacts upon the aggregate expenditure model.
A firm sells 10 units at a price of 20. The marginal cost of production for this firm is MC(q)=5+q. What is this firm’s Lerner Index?
The company’s MARR is 24% per year, compounded monthly. What is the maximum price Shockers Company should bid for PGP?
If a deposit outflow of $50 million occurs, which balance sheet would a bank rather have primarily or the following balance sheet.
Apples are bought and sold in a competitive market. Use a graph for the apple market and a graph for an individual firm to demonstrate that firms are earning economic profits. Explain, without using a diagram, whether the situation in (a) can be main..
sales in joint facilities are lower than sales in two separate facilities. Elucidate what do these numbers imply for the decision of when to open a shared facility versus two separate facilities.
Assume that during the last month of the tenth year of ownership, the property in Problem 2 is sold for 1,500,000. Assume also that the seller incurs transaction costs equalling 6 % of the sales price.
Suppose that people expect the Fed to hit its inflation target. A: Calculate the optimal money growth rate needed for the Fed to hit its inflation target in the long run.
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