MT445 unit 3

Please answer the following questions. Submit as a Microsoft Word® document to the Dropbox when completed.

1. Is the price elasticity of demand for gasoline more elastic over a shorter or a longer period of time? Explain.
2. Is the price elasticity of supply, in general, more elastic over a shorter or a longer period of time? Explain.

3. Why is the supply curve for labor usually upward sloping?
4. In the graph below, assume that the market demand curve for labor is initially D1. Answer the following questions.
a. What are the equilibrium wage rate and employment level?

b. Assume that the price of a substitute resource decreases, other things constant. What happens to demand for labor?

What are the new equilibrium wage rate and employment level?

c. Suppose instead that demand for the final product increases, other things constant. Using labor demand curve D1 as your starting point, what happens to the demand for labor?

What are the new equilibrium wage rate and employment level?

d. Assume this industry is dominated by non-union workers. How would the equilibrium wage compare to that earned in a similar industry with similarly skilled union workers? Explain.

5. Use the following data to answer the questions below. Assume a perfectly competitive product market.

Units of Labor Units of Output
0 0
1 8
2 12
3 17
4 21
5 23
a. Calculate the marginal revenue product at each level of labor input if output sells for $4 per unit.

b. If the wage rate is $15 per hour, how much labor will be hired?