Question 4:

a) According to rihannas Model, the prices of goods depend on the relative value of labour used to produce the goods. Therefore, if it takes 7 hours to produce 35 shirts, and 9 hours to produce D socks, then 1 shirt should trade for how many socks? [2 mark]

b) Suppose jackie has preferences for wallabees (W) and Berries (B) given by:

Utility = .

jackie wishes to generate X utils from the consumption of wallabees and berries.

Let X = A+2C+30. Suppose she can only buy bananas in sets of 5, 10, 15 or 22 units. How many units of wallabee should she consume in each case to ensure that she does not change her desired utility level?

c) Suppose that the supply curve for the labour to a firm is given by

L = X*w

and the marginal expense of labour curve is given by

MEL = L/ (X/2)

where w is the market wage. Suppose also that the firms demand for labour (marginal revenueproduct) curve is given by

L = Y X*MRPL

Let X = D and let Y = 500 + B.

i) If the firm acts as a monopsonist, how many workers will it hire in order to maximize

profits?

ii) What wage will it pay?

USE this value for:

A- 12

B- 557

C- 14