Name last 4 PSU ID Please check section that you are registered in Section 002 MWF 8 00 8 50 am 102 Forum Building Section 001 MWF 1 25 2 15 pm 101 Thomas Building Fall 2014 Chuderewicz YOU MUST HAND IN HW IN THE SECTION YOU ARE REGISTERED FOR NO EXCEPTIONS YOU MUST USE THIS AS A TEMPLATE THAT IS MAKE SPACE FOR YOUR ANSWERS BY HITTING ENTER you certainly don t need to type this assignment LEAVE THE QUESTIONS AS THEY ARE AND PLEASE STAPLE NOTEBOOK PAPER OR ANY PAPER STAPLED TO THE BACK IS NOT ACCEPTABLE GETS A ZERO ALSO PLEASE PUT THE FIRST TWO LETTERS OF YOUR LAST NAME IN THE TOP RIGHT HAND CORNER OF THIS PAGE SO THAT WE CAN ALPHABETIZE THESE EASILY THANKS IN ADVANCE Economics 304 Homework 2 The market for labor and the production function Chapter 3 Due Wednesday 9 17 at the beginning of class no late papers accepted Instructions Please show all work or points will be taken off Good luck 1 55 points total 5 points for each of 7 parts a through g 10 points for part h and the diagram plus 10 for diagram The production technology of a firm is given in the table below Number of workers 0 1 2 3 4 5 6 7 Units of output 0 48 88 118 144 166 184 196 MPN a Define the marginal product of labor explain how it relates to the production function with N on horizontal axis and Y on vertical axis and find the marginal product of labor MPN for each level of employment fill in the third column of table b Assume that the price of a unit of output is 10 Calculate the number of workers that will be hired if the nominal wage rate 290 Calculate the number of workers the firm will hire if the nominal wage is 250 Calculate the number of workers that the firm will hire if the nominal wage is 200 Draw a production function and real labor demand curve vertically with the PF on top like we do in class labeling point A as the wage price combo of 290 10 point B as the 250 10 combo and point C as the 200 10 wage price combo Be sure to label your diagram completely A correct and completely labeled diagram is worth 10 points c What could cause wages to fall like this name and support 2 reasons d Why exactly does the firm s behavior change when the nominal wage changes all else constant Make sure you refer to the profit maximizing condition when answering this question Please discuss in real terms not nominal terms e Let s return back to the initial conditions in the beginning of part b with prices at 10 and nominal wages at 290 point A Now we let prices change and fall from 10 to 8 holding nominal wages constant at 290 What could cause such a price change name at least 2 reasons Hint think of economics 102 f Locate this new point as point D on your two diagrams Similar to part d why exactly does the firm s behavior change when prices fall from 10 to 8 all else constant Again make sure you refer to the profit maximizing condition when answering this question Please discuss in real terms not nominal terms g Let s return to point A the initial conditions where the nominal wage rate 290 and the price of a unit of output 10 Assume that a new technology increases the number of units of output that each worker can produce by 10 units of output i e each worker s MPN rises by 10 Calculate the number of workers that the firm will hire and the number of units of output that will be produced fill in the table below Number of workers 0 1 2 3 4 5 6 7 Units of output 0 MPN Now locate this point as point E on both diagrams Again make sure you label diagram completely or points will be taken off h 10 points Comment on the macroeconomic implications of this technology shock as in assume many firms in the economy experience similar technology shocks on prices 2 inflation employment and the unemployment rate economic growth pressure on real wages the stock market via the profit implications and the budgetary implications for the Federal Government make sure you refer to each economic variable 2 50 points total 5 for each of 8 parts and 10 for diagram This current event is no longer current but it still works January 28 2014 10 47 AM ET Obama to Raise Minimum Wage for Federal Contractors Asserting Executive Power President Barack Obama plans to act unilaterally to raise the minimum wage for employees of federal contractors a move that asserts his executive powers before his State of the Union address in which he will press Congress to approve a broader increase this year write Carol E Lee and Eric Morath Read the full WSJ story here The executive order would raise the minimum wage for workers on new federal contracts to 10 10 an hour according to a fact sheet from a White House official It said Mr Obama would announce the new policy in his speech Tuesday which is scheduled to begin at 9 p m Eastern Time The federal minimum wage is 7 25 per hour and hasn t been raised since July 2009 About 22 000 federal employees were paid at or below minimum wage in 2012 according to the Labor Department The agency doesn t specify how many employees were government contractors Suppose the marginal productivity of labor for a federal employee is given by MPN 51 2N The labor supply curve for federal employees is estimated to be NS 15 w N is denominated in thousands of workers 2a Compute equilibrium values for the real wage and employment Illustrate this equilibrium on a labor market diagram in real wage space Please be sure you label the diagram completely with all the shift variable included and label this initial equilibrium point as point A A correct and completely labeled diagram is worth 10 points 3 2b Now the executive order from President Obama he is forcing mandating the real wage to be 10 actually it is the nominal wage at 10 10 but let s pretend it is the real wage at 10 What is the level of employment now 2c Compare the number of people willing to work vs the number of people that are hired What do we call the difference in these values when the quantity of labor supplied exceeds the quantity of labor demanded Add these two points to your diagram and label these points as point s B Make sure you identify the unemployed in your diagram 2d The intuition part 1 Why exactly did we move along the labor demand curve In particular why does the profit maximizing level of labor input change with the minimum wage program make sure you write out the profit maximizing condition and explain why it has changed i …