Economics Questions?? Someone please help!!!!!!!!!

Posted on 2014-11-25 09:27:00 in Economics by ALBET

Question 1
An employee of Joe’s Ice Cream receives her income partly in the form
of a money salary of £W per month and partly in the form of a free ice
cream allowance (a fixed number per month). If she wants, she can
buy more ice cream at the normal price of P1, but – for legal reasons –
she cannot re-sell the ice cream. The value of her free ice cream
allowance at the normal price is £V, so her total remuneration package
is worth £X = £V + £W.

(a) Draw a budget constraint to reflect this monthly salary package,
with money income on the vertical axis and ice cream on the
horizontal axis, clearly identifying £X, £V and £W. [5 marks]

(b) On a separate diagram, reproduce the budget constraint and
draw a selection of indifference curves that illustrate the situation
where a reduction in the price of ice cream (from P1 to P2)
causes the employee to increase her ice cream consumption.
Note that you do not need to identify £X, £V and £W on this new
diagram. [3 marks]

(c) Reproduce your first diagram and draw an indifference curve to
illustrate the case in which the employee would be indifferent to
her current remuneration package and a straight monetary
salary of £Y, where £Y < £X. (Assume that the price of ice
cream is back to its original level of P1.) [4 marks]

Question 2
Tawe Engineering can produce a quantity if widgets (Q) subject to the
following production function:
Q = 200K . L
when it employs a certain number of workers (L) with a certain stock of
capital (K).

(a) What degree of returns to scale does this production technology
exhibit? Draw a selection of isoquants to demonstrate this.
[3 marks]

(b) Identify the firm's short-run production function when it operates
with a short-run capital constraint of 6 units. In addition, draw the
marginal and average physical product of labour schedules in
light of this capital constraint. [3 marks]

(c) If the firm faces a fixed wage (w) of 270, draw its corresponding
(short-run) average variable cost and marginal variable cost
schedules. [3 marks]

(d) Suppose now that instead of a fixed wage the firm faces the
following upward-sloping labour supply schedule:
w = 40 + 0.4L
In the product market, though, Tawe Engineering is a price-taker
at £2 per widget. Determine the amount of labour they will wish
to employ in the short-run when operating with the capital stock
fixed at 6 units. What wage will they need to pay each of these
workers? [4 marks]

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