Marginal revenue productivity theory, Microeconomics

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Problem 1:

i) Distinguish between the different types of concentration measures.

ii) Derive and explain the Dorfman and Steiner (1954) condition for optimal advertising.

Problem 2:

i) Outline how the marginal revenue productivity (MRP) theory suggests that level of wages in an industry is determined under both perfect and imperfect competition?

ii) Suppose a firm is a monopsonist in the labour market it hires. Its MRP of labour is 14 - L and the wage rate is W = 2 + L.

a. How much labour the firm will hire and what wage rate it will pay?

b. How much labour it will hire and use if a minimum wage rate of $ 10 is imposed on it.


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