I. Consider a firm with production function q = 10.L0.4.K0.2, where q is output, L is output, L is labors and K is capital.
(a) Derive the firm's inverse demand for labor in the short run.
(b) Derive the firm's inverse demands for labor and capital in the long run.
(e) Derive the firm's direct demand for labor in the long rust. Point out the separate abort-run and long run adjustments to price changes within this demand lunch an.
2. Show, both graphically and algebraically, why the short-run factor demand by a monopolist is less than that for a perfectly competitive firm.
3. Is the long-run demand for a factor more, or less, elastic than its short-run demand? Explain why, and illustrate graphically.
4.1s the market labor demand curve sleeper or flatter than UN individual finnia labor demand. in general? Explain your reasoning tin this and illustrate with n graph.
5. You are considering purchasing a savings bond that will pay $100 is five years. The market interest rate currently is 3% per year.
(a) What should you be willing to pay to purchase this bond today"?
(b) Suppose the interest rate goes up next year, to 4% per year. What will happen to the price of the bond? Explain.
6. You have just purchased an annuity that pays $100 per year in perpetuity. You paid $3.000 fur this annuity.
(a) What does this decision say about your implied discount rate?
(b) If you can earn a 1% return on the 5,3000 by investing it in risk-free Treasury bonds. was your decision a. good one? Explain.