ECON 351 - Problem Set #2 Deadline 10/06/2020 EOD Please upload your solutions to Blackboard to the Assignment Labeled: Problem Set 2. The upload must contain a pdf document for questions that require you to show your work. You can download a free copy of Adobe Scan to your phone in order to turn in a pdf document. 1 expected utility = r. u(w) + (1 - 1)u(w - s) where w is the wage, ris the probability of keeping the job, (1-r) is the probability of losing the job and s is the switch cost. (8 pts) The image above represents a model of labor pooling for two firms (an isolated firm and a firm in a cluster). The utility function is uincome) = w1/2. There is a 50 percent chance of being fired from either firm. Suppose for the isolated firm, the wage is w = $100. Please show all your work a. Please calculate the utility of an income $80. b. Please calculate this worker's expected utility. c. Would an income of $80 be considered a Nash equilibrium? Explain. 2. (8 pts) Let us reflect on the location choices of micro-breweries and wineries. Most micro-breweries are located close to their customers (market) and far from their inputs (barley, wheat, etc.). On the other hand most wineries are located far from customers (market) and close to their inputs (grapes). Explain the differences in their location decision. ECON 351 - Problem Set #2 Deadline 10/06/2020 EOD Please upload your solutions to Blackboard to the Assignment Labeled: Problem Set 2. The upload must contain a pdf document for questions that require you to show your work. You can download a free copy of Adobe Scan to your phone in order to turn in a pdf document. 1 expected utility = r. u(w) + (1 - 1)u(w - s) where w is the wage, ris the probability of keeping the job, (1-r) is the probability of losing the job and s is the switch cost. (8 pts) The image above represents a model of labor pooling for two firms (an isolated firm and a firm in a cluster). The utility function is uincome) = w1/2. There is a 50 percent chance of being fired from either firm. Suppose for the isolated firm, the wage is w = $100. Please show all your work a. Please calculate the utility of an income $80. b. Please calculate this worker's expected utility. c. Would an income of $80 be considered a Nash equilibrium? Explain. 2. (8 pts) Let us reflect on the location choices of micro-breweries and wineries. Most micro-breweries are located close to their customers (market) and far from their inputs (barley, wheat, etc.). On the other hand most wineries are located far from customers (market) and close to their inputs (grapes). Explain the differences in their location decision
