Economics Exam Questions

Efficiency Wages

Questions: There are 10 questions. Each question is equally weighted. Answer all.
1. Explain the concepts of efficiency wages. Why do employers prefer to have efficiency wages?
What is the impact of efficiency wages on the unemployment rate?

 

2. Summarize the Canadian economic situation in the early 1970s. In particular, explain why unemployment soared at that time.

 

3. What are causes of unemployment? Explain why there is no zero unemployment rate in the economy.

 

4. Assume a monopsony model with the following information.
L W MP
1 20 25.0
2 25 22.5
3 30 20.0
4 35 17.5
5 40 15.0
6 45 12.5
7 50 10.0
8 55 7.5
9 60 5.0

Assuming the market price of the output is $5.00 per unit, answer the followings.

a. Draw the firm’s labour supply and marginal resource cost curves. Are the curves the same or different? If they are different, which one is higher?
b. On the same graph, plot the labour demand data. What are the equilibrium wage rate and level of employment?
c. If the government imposes a minimum wage of $30, determine the employment level.
d. If this is a market of perfect competition, compare the wage and employment for the monopsony with the market of the perfect competition. By how much does the monopsonist reduce wages below the competitive wage? By how much does the monopsonist reduce employment  below the competitive level?

 

5. Evaluate the following statements if it is true, false, or uncertain.
a. Labor union decreases efficiency and wage rate.
b. Minimum wage policy increases efficiency and employment.

 

6. Evaluate the following statements if it is true, false, or uncertain.
a. An increase in the output price will increase labor demand.
b. When the price of capital falls, demand for labor will decline.
c. When the price of capital falls, demand for labor will increase.

 

7. Suppose the productivity of capital and labour are as shown in the accompanying table. The output of these factors sells in a perfectly competitive market for $0.8 per unit. Both capital and labor are hired under perfectly competitive conditions at $15 and $10, respectively.
K MPK L MPL
0 0
1 30 1 21
2 27 2 18
3 24 3 15
4 21 4 12
5 18 5 9
6 15 6 6
7 12 7 3
8 9 8 1
a. What is the least?cost combination of labour and capital the firm should employ in producing 120 units of output? Explain.
b. What is the profit?maximizing combination of labor and capital the firm should use? Explain.
What is the resulting level of output? What is the economic profit?

 

8. Assume a market of perfect competition that is faced with the demand schedule and cost data shown below.
Q P TC
1 99 50
2 89 75
3 79 100
4 69 128
5 59 165
6 49 205
7 39 255
8 29 315
a. Draw a graph of market demand and supply.
b. Determine the profit?maximizing price and profit?maximizing output for this market.
c. Verify your answer graphically.

 

9. Continue from the previous question with the same demand and cost information.
Q P TC
1 99 50
2 89 75
3 79 100
4 69 128
5 59 165
6 49 205
7 39 255
8 29 315
Assume now a monopoly firm and answer the followings.
a. Calculate the total?revenue, the marginal?revenue, and the marginal cost.
b. Determine the profit?maximizing price and profit?maximizing output for this monopolist.
c. What is the monopolist’s profit? Verify your answer graphically.
d. Graphically show the area of deadweight loss.

 

10. Evaluate the following statements if it is true, false or uncertain.
a. The profit maximization rule for a monopoly firm is MR=MC, but the profit maximization rule for
a perfectly competitive firm is P=MR=AR.
b. A Monopsony firm pays more and hire more than a firm under perfect completion.
c. Monopsony firm is efficient.