Exam 15: Factor Markets

Suppose that your college offers you two payment plans for your last two years of college.You may either pay tuition of $20,000 per year at the beginning of each of the next two years,or pay just $38,000 before the start of freshman year.What would the interest rate have to be for you to be indifferent between these two deals? Explain.

Interest rates are positive because inflation makes purchases more expensive in the future than today.

The growth over time in the spread between price and marginal cost of an exhaustible resource is equal to

Four banks are offering the same interest rate of 4%.Where do you invest?

If a firm buys its labor in a competitive market,then a short-run increase in the price of the firm's output will cause the firm to

The increase in total revenue due to increasing the amount of labor employed by one unit is called the

To calculate the internal rate of return on a factory that would yield a perpetual future stream of income,one would divide

In using the Internal Rate of Return approach,one must first calculate the discount rate on the investment that makes

If an exhaustible resource is priced at marginal cost that remains constant over time,then

Suppose the market demand elasticity is constant at -2,and there are three identical firms in the oligopolistic market.A Cournot firm's MPL = 1.2L^-0.5,then the labor demand for a Cournot firm is

Today John says,"I will start working out tomorrow." Yet as tomorrow arrives,he doesn't.This is an example of

An investment is profitable as long as its internal rate of return is equal to the rate of interest.

Suppose a monopoly producer is also a monopsonist in the labor market.Demand for the output is p = 100 - Q.The production function is Q = L,and the labor supply curve is w = 10 + L.How much labor does the firm hire? What wage is paid?

As the interest rate increases,the present value of a future payment

Jerry wishes to retire in five years with $1 million in his bank account.If the account pays 4% and his current balance is $500,000,how much must he deposit at the beginning of each of the next five years for his wish to come true? The amount must be the same each year.

If a firm needs one machine to produce a product,and must replace the machine when it wears out,then the firm should pick a durability level of the machine that

-The above figure shows a competitive firm's demand for labor assuming that the firm's output sells for $1 per unit.If the wage is $5 per hour,a ten cent per unit subsidy on the good sold by the firm will cause the firm to

For a monopoly,the value of the next worker equals

A major corporation hires high school students on a part-time basis.It offers a reward of $5,000 to any of its high school seniors who graduate college in four years.What is the present value of that reward to a student who just finished her junior year of high school,assuming a nominal rate of interest of 8%?

Jon runs a bar in New York City.A city law prevents smoking in New York bars,but Jon is able to convince a friend in city hall to grant his bar a smoking permit by exploiting some fancy loopholes in the law.While smoking enables Jon to charge a premium to the customers (higher drink prices),his workers are subject to second-hand smoke.Therefore Jon has to pay his workers a wage higher than he otherwise would.Assuming Jon's production function is f(L,K)= L^αK^1-α,where L is the quantity of workers and K is the quantity of capital,how does Jon's optimal capital-to-labor ratio compare to similar bars without smoking?