1. Discussion Session 5

2. Labor markets 1) Suppose a firm with some market power faces a downward-sloping demand curve for customized mugs. Fill in the table below. Quantity of Labor Quantity of Output Marginal Product of Labor Price of Output Total Revenue Marginal Revenue Marginal Revenue Product of Labor 56013 1010011 151309 201508 251607 301656

3. Labor markets 1) Suppose a firm with some market power faces a downward-sloping demand curve for customized mugs. Fill in the table below. Quantity of Labor Quantity of Output Marginal Product of Labor Price of Output Total Revenue Marginal Revenue Marginal Revenue Product of Labor 5601213 10100811 1513069 2015048 2516027 3016516

4. Labor markets 1) Suppose a firm with some market power faces a downward-sloping demand curve for customized mugs. Fill in the table below. Quantity of Labor Quantity of Output Marginal Product of Labor Price of Output Total Revenue Marginal Revenue Marginal Revenue Product of Labor 5601213780 101008111100 15130691170 20150481200 25160271120 3016516990

5. Labor markets 1) Suppose a firm with some market power faces a downward-sloping demand curve for customized mugs. Fill in the table below. Quantity of Labor Quantity of Output Marginal Product of Labor Price of Output Total Revenue Marginal Revenue Marginal Revenue Product of Labor 560121378013 1010081111008 151306911702.33 201504812001.5 25160271120-8 3016516990-26

6. Labor markets 1) Suppose a firm with some market power faces a downward-sloping demand curve for customized mugs. Fill in the table below. Quantity of Labor Quantity of Output Marginal Product of Labor Price of Output Total Revenue Marginal Revenue Marginal Revenue Product of Labor 560121378013156 101008111100864 151306911702.3314 201504812001.56 25160271120-8-16 3016516990-26

7. Labor markets 1) Suppose a firm with some market power faces a downward-sloping demand curve for customized mugs. Fill in the table below. If the market wage is $30, how many workers will this firm hire? Quantity of Labor Quantity of Output Marginal Product of Labor Price of Output Total Revenue Marginal Revenue Marginal Revenue Product of Labor 560121378013156 101008111100864 151306911702.3314 201504812001.56 25160271120-8-16 3016516990-26

8. Labor markets 1) Suppose a firm with some market power faces a downward-sloping demand curve for customized mugs. Fill in the table below. If the market wage is $30, how many workers will this firm hire? Quantity of Labor Quantity of Output Marginal Product of Labor Price of Output Total Revenue Marginal Revenue Marginal Revenue Product of Labor 560121378013156 101008111100864 151306911702.3314 201504812001.56 25160271120-8-16 3016516990-26

9. Labor markets 1) Suppose a firm with some market power faces a downward-sloping demand curve for customized mugs. Fill in the table below. If the market wage is $30, how many workers will this firm hire? 10 workers Quantity of Labor Quantity of Output Marginal Product of Labor Price of Output Total Revenue Marginal Revenue Marginal Revenue Product of Labor 560121378013156 101008111100864 151306911702.3314 201504812001.56 25160271120-8-16 3016516990-26

10. Key economic policy issues – Public Goods 2) Suppose a town benefits from public parks. There are 3 households in the town. The marginal benefit for each households are in the table below. If the cost of building each park is 60,000, how many parks will this town build? Quantity of Parks MB for household A MB for household B MB for household C Marginal Benefit for the town 160,00030,00010,000 245,00026,0009,000 340,00020,0005,000 433,00018,0004,000

11. Key economic policy issues – Public Goods 2) Suppose a town benefits from public parks. There are 3 households in the town. The marginal benefit for each households are in the table below. If the cost of building each park is 60,000, how many parks will this town build? Quantity of Parks MB for household A MB for household B MB for household C Marginal Benefit for the town 160,00030,00010,000100,000 245,00026,0009,00080,000 340,00020,0005,00065,000 433,00018,0004,00055,000

12. Key economic policy issues – Public Goods 2) Suppose a town benefits from public parks. There are 3 households in the town. The marginal benefit for each households are in the table below. If the cost of building each park is 60,000, how many parks will this town build? 3 parks Quantity of Parks MB for household A MB for household B MB for household C Marginal Benefit for the town 160,00030,00010,000100,000 245,00026,0009,00080,000 340,00020,0005,00065,000 433,00018,0004,00055,000

13. Key economic policy issues - Externalities 3) After September 11, the media paid closer attention to the potential use of shipped cargo containers to smuggle weapons and terrorists into the United States. a. Discuss why there may be a negative externality associated with the use of shipping containers. b. Graphically show the market for ship transportation of cargo. Make sure you include all the relevant aspects of this market, given your answer to part (a). c. Graphically show any deadweight loss that occurs in this market. d. Discuss how taxes can help eliminating deadweight loss in this market.

14. Bond Pricing and Present Value How much would you be willing to pay for a bond that has a face value of $1,000, a coupon of 5%, and a maturity of 5 years, if the current market rate, i.e. the yield, is 5%. $1000 What is the price of a three-year bond with a face value of $1,000, a coupon of 5%, and a yield of 10%? Call this Bond A. $876

15. Bond Pricing and Present Value Minutes after you buy Bond A you receive news that makes you believe market rates will change in Year 3 to 5%. What is a fair price for this bond now? $913 Ignoring any change in market expectations, what will the bond be worth after one year? $913