Reykjavik University Labour Economics Questions

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(10%) The company Chockies produces chocolate chips has the following production function: Number of workers Production (in kg) 12 1000 14 1025 16 1045 18 1057 20 1066 22 1070 Each kg of chocolate chips costs 5. Assume the company wants to maximize profits.Calculate the marginal cost of labor and marginal revenue product for each level of production.Draw the demand and supply curve for labor in this company.How many people will the company hire?The company can hire as many workers as it wants for 30. Part II: (25%) The unemployment rate is currently used as a major indicator of the economic health of nations. Is the unemployment rate a good measure of the situation in the labor market? What do we need to keep in mind when interpreting that indicator?(25%) You are hired by the Ministry of Finance to advise the Minister on income tax issues. You know that increasing income tax rates is equivalent to reducing the wage rate. The Minister tells you that he believes that if he reduces the income tax rate, everyone will work more and there will be a net increase in tax revenue. What is your response as a responsible labor economist? Explain.(25%) Discuss minimum wages. Show minimum wages on a graph and discuss the advantages and disadvantages of imposing minimum wages. What is the purpose of minimum wages? How do unions view minimum wages? What is the effectiveness of minimum wages?(25%) Define elasticity of demand for labor, both own-wage elasticity of demand for labor and cross-wage elasticity of demand for labor. Discuss the significance of elasticity and whether, and if so, it is possible to affect the elasticity of demand for labor.

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Part I: Answer the following questions (25%)
1. (10%) The company Chockies that produces chocolate chips has the following
production function:
Number of
workers
Production
(in kg)
12
1000
14
1025
16
1045
18
1057
20
1066
22
1070
Each kg of chocolate chips costs 5. Assume the company wants to maximize
profits.
a) Calculate the marginal cost of labor and marginal revenue product for each
level of production.
The company can hire as many workers as it wants for 30.
b) Draw the demand and supply curve for labor in this company.
c) How many people will the company hire?
V-733-ILEC
Final 2021
Part II: Answer 3 of the following 4 questions. Each is worth 25% of the
grade (75%). If you answer all 4 questions, only the first 3 questions
answered will be graded.
1. (25%) The unemployment rate is currently used as a major indicator of the
economic health of nations. Is the unemployment rate a good measure of the
situation in the labor market? What do we need to keep in mind when interpreting
that indicator?
2. (25%) You are hired by the Ministry of Finance to advice the Minister on income
tax issues. You know that increasing income tax rates is equivalent to reducing the
wage rate. The Minister tells you that he believes that if he reduces the income tax
rate, everyone will work more and there will be a net increase in tax revenue. What
is your response as a responsible labor economist? Explain.
3. (25%) Discuss minimum wages. Show minimum wages on a graph and discuss the
advantages and disadvantages of imposing minimum wages. What is the purpose
of minimum wages? How do unions view minimum wages? What is the
effectiveness of minimum wages?
4. (25%) Define elasticity of demand for labor, both own-wage elasticity of demand
for labor and cross-wage elasticity of demand for labor. Discuss the significance of
elasticity and whether, and if so, it is possible to affect the elasticity of demand for
labor.

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Explanation & Answer:
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Tags:
Minimum Wages

demand for labor

chocolate chips

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