Econ 360: Assignment 2 - UBC Blogs

5. [4 points] Instead of part (d), suppose that Arc’Teryx is not successful in lobbyingthe government. Show that using the original production function (given by(1)), a reduction in the wage could help offset some of the negative employmentimpact in part (c).Question 3 [20 points]1. [4 points] Consider a firm that sells its output in a perfectly competitive productmarket, and hires labour in a perfectly competitive labour market. The value ofthe marginal product of labour (in dollars) is given byV MP L = 30 − 2L.Assuming that the firm is a profit maximizer and can hire labour at $W per unit,derive its labour demand function.2. [4 points] Given that there are 10 identical firms (like the firm described in part(a)) in the industry, show that the market labour demand is given byL D = 150 − 5W.3. [4 points] The supply function of labour to this market is given byL S = 10W.Solve for the equilibrium wage and the level of employment in this market. Representthe equilibrium graphically and carefully label your diagram.4. [4 points] In an effort to stimulate employment in this industry, the governmentoffers firms a subsidy of $3 per unit of labour hired. Analzye the effects ofthe subsidy on the level of employment and the workers’ wages. Represent thissituation graphically and carefully label your diagram.5. [4 points] The government’s opposition parties accuse the government of cateringto “corporate welfare bums” with the wage subsidy. They suggest that themoney would be better spent by putting the money directly into the hands ofthe workers. They propose that the government should directly give workers anadditional $3 for each unit of labour worked. Compute the equilibrium wage andemployment level that would prevail under this policy. Evaluate the argumentput forward by the opposition parties by comparing workers’ employment andincome to the scheme in part (4). Support you argumentation with a carefullylabelled diagram.3