Introductory Economics
Eco 108
HW 4

1. Suppose that the demand for labor in Rochester is Q^d = 1,780,000-200,000P and the supply of labor is Q^s = -140,000+120,000P, where P is the price of labor in dollars per hour and Q is measured in hours of labor.

   • [a.] What is the equilibrium price and quantity of labor?

   • [b.] What is the price and quantity traded if the government sets a minimum wage of $5.50 per hour?

   • [c.] What is the price and quantity traded if the government sets a minimum wage of $6.50 per hour?

   • [d.] If there is no minimum wage, case a, and the governemnt imposes a minimum wage of $6.50 per hour, case b, how does employment change? How big is the shortage or the surplus at a wage of $6.50 per hour?

2. Suppose there are two profit maximizing firms that are each producing 8 units at a price of 20, with a TFC of 50. Firm 1 has a TVC of 140, and firm 2 has a TVC of 175.

   • [a.] What are the profits of both firms?

   • [b.] Will firm 1 continue to operate? Why or why not? Given this decision, what is its profit or loss?

   • [c.] Will firm 2 continue to operate? Why or why not? Given this decision, what is its profit or loss?

3. Suppose we have a price taking firm.

   • [a.] Draw a MC curve and an AVC curve for this firm.

   • [b.] Label a price P₁, and its associated profit maximizing quantity Q₁, where the firm will operate.

   • [c.] Label the price P₂, and its associated profit maximizing quantity Q₂, where the firm is indifferent between operating and shuting down.

   • [d.] Label a price P₃, and its associated profit maximizing quantity Q₃, where the firm will shutdown.

   • [e.] Label this firm's supply curve.

4. Suppose we have the information about a firm given in the table:
   

   Q	P	TC
   1	20	10
   2	18	14
   3	16	20
   4	14	28
   5	12	38
   6	10	50
   7	8	64
   8	6	80

   • [a.] Create a table with the following information, Q, P, TR, MR, TC, and MC.
   • [b.] What is the profit maximizing quantity? How do you know?
   • [c.] What is the profit maximizing profit?

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