Which of the following pairs of goods are most likely to have a ...

[Diane]

Which of the following pairs of goods are most likely to have a negative cross-price elasticity of demand?
 
  A) Hotdogs and hotdog buns
  B) Coke and Pepsi
  C) Rail tickets and plane tickets
  D) A Luciano Pavarotti compact disc and a Placido Domingo compact disc (Both Pavarotti and Domingo are opera stars.)

Question 2

Clarke Mementos manufactures small figurines that they sell to retailers around the country. Clarke sells the figurines for 5.00 each, a price the firm considers given. Clarke's production function is given by the expression:
 
  Q = 60L - 0.5L2,
  where Q = number of figurines per day, and L = number of skilled workers per day. Based on this production function, the average and marginal products of labor are as follows:
   AP = 60 - 0.5L MP = 60 - L
 
  a. Write an expression for the firm's marginal revenue product.
  b. Clarke currently pays 150 per day (including fringe benefits) for each of its skilled workers. How many workers should the firm employ?
  c. Clarke's workers are highly skilled artisans with a great deal of job mobility. The firm's managers fear that they must increase the workers' total compensation to 200 per day to remain competitive. What impact would the wage increase have upon the firm's employment?

[coreycathey]

Answer to Question 1

A

Answer to Question 2

a.
MRP = MR  MP
P = MR since the firm regards price as given
P = 5
MRP = 5(60 - L) = 300 - 5L

b.
Equate MRP to wage:
300 - 5L = 150
5L = -150
L = 30

c.
At the new wage of 200,
300 - 5L = 200
-5L = -100
L = 20
Employment would fall from 30 to 20.

[Diane]

Thank you

[coreycathey]

Happy to help you