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True/false/ambiguous (45 points total) For each of the following, indicate whether the statement is true, false, or ambiguous, and briefly explain...
True/false/ambiguous (45 points total) For each of the following, indicate whether the statement is true, false, or ambiguous, and briefly explain your answer. If your answer depends on any assumptions, state them clearly. Use graphs to illustrate your answer whenever it is helpful.
a. (5) In April 2011, the unemployment rate in the United States increased from 8.8% to 9%. This means the economy is not yet recovering from the Great Recession.
b. (5) A profit-maximizing firm has production function Y = min(L,K). For this firm, the scale effect on labor demand always dominates the substitution effect.
c. (5) A profit-maximizing firm has production function Y = L + K. For this firm, the substitution effect on labor demand always dominates the scale effect.
d. (5) To encourage workers to invest in specific human capital, employers have to pay workers more than their marginal product at the firm after the training is completed.
e. (5) Extraordinarily high CEO pay need not reflect a ripoff of shareholders, but instead can be an optimal compensation scheme that firms use to maximize profits.
f. (5) If a person is originally not working and the wage they can earn increases, they may or may not choose to work, depending on whether the substitution effect is stronger than the income effect.
g. (5) In contrast to the standard labor demand model, employers may sometimes choose to pay a wage higher than the market wage in order to maximize profits.
h. (5) If the signaling model of schooling is true, then schooling is not as good an investment as the human capital model implies.
i. (5) A wage regression being used to estimate discrimination against blacks should control for education and experience, as well as the fact that blacks work in lower-paying occupations than whites.
