Please answer questions by 6pm CST tomorrow
In the pleasant city of Evanston there is only one butcher shop, Smitheld. It has the 'monopsony' power to set its own wages, free from competition from any rivals. However, it has to pay all of its employees the same daily wage. There are three skilled butchers in town: Hank, Pat and Terry. Smitheld can hire one, two or all three of them. Frank carves $8 worth of meat per day; Terry similarly produces $8 worth of output per day; Pat chops $9 worth of meat per day. [If more than one is employed, the value of their total output is just the sum of their individual productivities. For example, if all three are employed they will together produce $8+$8+$9=$25 worth of meat]. They have diiferent preferences regarding work vs leisure. The butcher shop knows that Frank will work for $3 per day, while Terry is happy to work for $4 per day and Pat is only willing to work for $6 per day. Smitheld needs to decide which butchers to hire in order to maximise prots. Assume that, when indifferent between hiring plans, the rm chooses the one that involves the most hiring. For example, if it is indi'erent between hiring one and hiring two butchers, it will choose the latter option. 1. How much prot per day will the butcher shop make if it employs only Pat? 2. How much prot per day will the butcher shop make if it. employs only Frank? 3. How much prot per day will the butcher shop make if it hires both Pat and Torry? 4. Which combination of butchers should Smitheld hire if it wants to maximise prots? (i) Frank (ii) Pat (iii) Terry (iv) Frank and Pat (v) Frank and Terry ( ( vi) Pat and Terry vii) hank, Pat and Terry 5. You are the mayor of the town, and are considering introducing a minimum daily wage. What is the lowest value of the minimum wage that will lead to a rise in employment? 6. You, as mayor, introduce a minimum wage equal to the answer to the preceding question. What is the actual wage paid by Smithfield as a result? Zippy, George and Bungle are the sole inhabitants of Teddington. Their total holdings of $100 between them constitute the only currency in circulation; this doesn't change in any of the questions below. 7. On Monday Zippy pays George $5 for an ice cream; George buys a tricycle from Bungle for $35; Bungle buys nothing. What is the velocity of money V on Monday? 8. On Tuesday Zippy buys another ice cream from George for $10; George buys candy from Bungle for $5; Bungle buys a hat from Zippy. If the velocity of money V is equal to 0.7 on Tuesday, how much did Bungle pay Zippy for the hat? 9. The Teddington Statistical Agency calculates that the inflation rate, i.e. T = p, was 30% between Monday and Tuesday. What is the implied growth rate of Y, i.e. g = , between Monday and Tuesday?Consider a closed economy, where wages are sticky in the short run. The consumption function is C = (:0 + (:1 (Y T), where the marginal propensity to consume c1 is equal to 0.9. Initially the economy is in equilibrium at Y = Y* and P = P8, where P'3 is the price level that was expected when agents agreed their xed nominal wage contracts. The short-run aggregate supply curve (SEAS) is horizontal. Suddenly the government increases government spending G by $400. For the following questions, if you think a variable goes up by (say) $50, just enter 50 as your answer. If you think a variable goes down by $50, enter -50 as your answer. If you think a variable doesn't change at all, enter 0 as your answer. 10. 11. 12. 13. 14. 15. By how much will output Y change in the short run? By how much will consumption 0 change in the short run? By how much will investment I change in the short run? By how much will output Y change in the long run, after wage contracts are renegotiated? By how much will consumption 0 change in the long run, after wage contracts are renegotiated'? By how much will investment I change in the long run, after wage contracts are renegotiated
