Please answer these with true and false with explanation! A3-1. Assuming that al
ID: 1108800 • Letter: P
Question
Please answer these with true and false with explanation!
A3-1. Assuming that all endowment income is earned in the present then, if a household considers both present and future consumption to be normal goods, an increase in income earned in the present causes the household to increase its saving.
A3-2. Suppose that over the last few years several monetary jurisdictions worldwide have had negative after-tax real interest rates. Faced with this, households who earn all of their endowment income in the present would reduce their saving to zero.
A3-3. Suppose the output of a firm changes from 1000 to 1400 to 1700 as the firm changes from 10 to 11 to 12 workers. The firm experiences diminishing marginal product over this range of labour input.
A3-4. Two Econ profs quit their jobs to launch U&I Consulting. If the firm generates $350,000/year in revenue, and pays $200,000/year in rent, interest on a bank loan, and to employ a research assistant, the venture earns positive accounting and economic profit.
A3-5. Suppose a firm faces a wage of 100/unit of labour and at its current hiring level, marginal product (MP) is equal to 10. If a technological advance increases MP to 20, the marginal cost of output produced by this level of labour will decline from 10 to 5. [Hint: MC across multiple units of output is the change in total costs divided by the change in output]
A3-6. Suppose a firm is currently operating where it would experience long-run diseconomies of scale if it increased output. This firm will have average costs that increase by less in the short-run than it would in the long-run.
A3-7. An increase in the minimum wage will have no effect on either firm-level or industry level supply curves for competitive industries that hire minimum wage labour, so prices will be unaffected in these markets in both the short and long run. [Hint: Assume the industry is composed of identical firms.]
A3-8. A cartel composed of small firms who would otherwise be operating in a competitive market is stable because the firms have no incentive to increase output beyond their agreed-upon output quota.
Explanation / Answer
A3-1 False
Since consumption this period and next period are normal goods an increase in income will induce cosumer to increase consumption in both periods.
A3-2 True
Since after tax interest rate is negative consumer will save nothing . This is because higher intrest higher is inducement to save more.
A3-3 True
As labour increases marginal product for each worker falls. For 1st worker it is 400 and for second worker it is 300
A3-4 False
Accounting profit is Revenue minus cost and is positive in this case (350000-200000= 150000) but economic profit includes opportunity cost which is not given so uncertain about economic profits