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Making dresses is a labour-intensive process. Indeed, the production function of a dress-making firm is well described by the equation Q = L - L2/800, where Q denotes the number of dresses per week and L is the number of labour-hours per week. The firm's additional cost of hiring an extra hour of labour is about $ 20 per hour (wage plus fringe benefits). The firm faces the fixed selling price, P = $40.
a. How much labour should the firm employ? What are its resulting output and profit?
b. Over the next two years, labour costs are expected to be unchanged, but dress prices are expected to increase to $50. What effect will this have on the form's optimal output? Explain. Suppose instead that inflation is expected to increase the firms' labour cost and output price by identical (percentage) amounts. What effect would this have on the firm's output?
c. Finally, suppose once again that MCL = $20 and P = $50 but that labour productivity (i.e., output per labour-hour) is expected to increase by 25% over the next 5 years. What effect would this have on the firm's optimal output? Explain.
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An industry consists of three firms with identical costs C (q)18q +q2. What is the industry equilibrium (price, output and profits) if the firms have Cournot beliefs?
Suppose the government is concerned that the going wage rate of $6 per hour for low skilled workers is too low.
Suppose that you believe that the average rate of inflation over the next 20 years will be 3.5 percent. Would you by the nominal or the inflation-indexed bond?
Bridget has limited income and consumes only wine and cheese; her current consumption choice is four bottles of wine and 10 pounds of cheese.
Graph these data using "dollars" on the vertical axis and "quantity" on the horizontal axis. At what output is revenue maximized?
A firm uses two inputs, unskilled labor (L) and capital (K) to produce its product. The wage rate for one unit of labor is $5, while units of capital cost $20.
If you assume that the forward rate is a predictor of the future spot rate, does it suggest that the Dollar should have appreciated or depreciated from 2001 to 2002? (round to nearest integer)
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