Econ 311-Labor Economics

Econ 311-Labor Economics.

Assignment 1

Please find the following information on your own for U.S. 2012.

civilian noninstitutional population aged 16 and older	Male	Female
labor force
employed
unemployed
not in labor force
employment rate
unemployment rate
labor force participation rate

The source of your data is from:_______________________________

• Labor Supply.

Assume an individual’s utility function can be written as

U = (C-200)(L-50)

Where C is consumption and L is the amount of leisure in a week of 168 hours. The individual obtains $200 in unearned income and faces a $10 an hour wage rate.

Based on the individual’s utility, we know that the marginal utility of consumption is MU_C = L-50, and the marginal utility of leisure is MU_L = C-200. 

1. Draw the individual’s budget line.
   1. What is the marginal rate of substitution for consumption when the individual has 100 hours of leisure and works the rest of the time.
   1. What is the individual’s reservation wage? Explain.
   1. What is the individual’s utility maximizing choice of work. Please both calculate numerical numbers and demonstrate the optimal choice graphically.

• Labor Demand.

Suppose a firm purchases labor in a competitive labor market and sells its product in a competitive product market.

Suppose the hourly wage is $12 and the price of output is constant at $25 per unit. The firm’s short-run production function is

            f(E) = 10E^0.7

            so that the marginal production of labor is

                        MP_E = 7 E^-0.3

1. How much labor should the firm employ in the short-run?
2. How much profit will the firm earn?

Econ 311-Labor Economics

 

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