EC 350 Winter 2017 Assignment #3 due 3/7/17 at noon You may work in groups but you must hand in your own work (no photocopies). Please label all

EC 350 Winter 2017 Assignment #3 due 3/7/17 at noon You may work in groups but you must hand in your own work (no photocopies). Please label all graphs and write out formulae, etc. 1) You are able to work in groups on this assignment. Assuming all members of a group hand in similar work, what payment scheme from chapter 7 is your grade on this assignment most like? What problem is associated with such an incentive scheme? [6 pts.] 2) For each pair of jobs, state which job should have the higher wage, ceteris paribus: Job 1, Job 2, or uncertain. [4 pts. each] A) Job 1 is in a more expensive city than Job 2 and is also more dangerous than job 2 B) Job 1 is a union job while Job 2 is not, and Job 1 is in a higher status field C) Job 1 is in a nice suburban location, close to the city, while Job 2 is way out in the country, with few amenities close by D) Job 2 offers more fringe benefits than Job 1, but Job 2’s earnings are less regular E) There is very little room for promotions in Job 1 compared to Job 2, and Job 2 is at a smaller firm 3) If you were an owner of a company, which alternative pay scheme (pick one) from chapter 7 would you use to overcome the principal-agent problem? Why is this scheme best for your company? What is at least one downside of this scheme? [12 pts.] 4) FirmCo Firms, Inc. is the monopolist of those little plastic things that keep the ends of your shoelaces from fraying. The supply of labor is given by W=10. FirmCo’s VMP curve is given by Q=40-2W (this curve would also be the demand for labor, were this a competitive setting). Give a formula for FirmCo’s MRP curve (Hint: first rewrite the VMP curve so that W is on the left hand side). What would the equilibrium wage and quantity of labor be, were this a competitive setting? What is the equilibrium wage and quantity in this monopoly setting? What is the efficiency loss (deadweight loss) caused by this monopoly? [15 pts.] 5) Obsolete Industries, Ltd. is the only company that hires typewriter repairpeople. Their VMP and MRP curves are both given by Q=14-W. Their AWC curve is given by Q=W-2 (note: both curves do not have W on the L.H.S. - adjust accordingly). Give a formula for Obsolete Industries’ MWC curve. What would the equilibrium wage and quantity be, were this a competitive setting? What is the equilibrium wage and quantity in this monopsony setting? What is the efficiency loss? [15 pts.] 6) Stavros lives in Greece and makes 10,000 Euros per year in the retail trade. He hears about retail jobs in Germany that pay 20,000 per year. Stavros does not speak German yet, so he estimates that he can make 12,000 Euros per year in Germany. Stavros would incur 1,000 Euros in direct moving costs, plus 25,000 Euros in psychic costs if he moves (he loves his family dearly). He plans on working for 20 more years, his discount rate is 4%, and all salaries are paid in lump sums at the end of the year (so you can use the present value of an annuity formula). Should Stavros move to Germany? If the cost of living were higher in Germany than Greece, how would this change your answer? [15 pts.] 7) What do the words “exogenous” and “endogenous” mean in the context of economics/econometrics? What was the Mariel Boatlift (give dates, leaders, countries, etc.)? One of the difficulties of measuring labor market outcomes due to migration is the self-selection problem (a type of endogeneity problem) mentioned in Chapter 9 - in other words, it’s hard to tell how migration effects wages because people often choose to migrate in order to get higher wages. How did the Mariel Boatlift provide researchers with an exogenous source of migration? According to the labor economist David Card, how did the Mariel Boatlifts affect labor markets in the Miami area? What did the labor economist George Borjas do differently in his analysis, and what different result did he find? [20 pts.] [You can find most of this on wikipedia, but use your own words.]