1. Suppose the tennis ball market is competitive and the market price for a three-pack of tennis

balls is $4.00. The production function of tennis balls is given by Q = 100L – L , where Q is the

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quantity of three-packs per day and L is units of labor. The firm pays its workers a going-market

wage of $80 per day. How many units of labor should the firm hire?

a. 10

b. 20

c. 30

d. 40

2. A monopolist faces an inverse demand curve given by P = 60 – 2Q. The monopolist hires workers

in a competitive market at a wage = $200. The monopolist’s production function is Q = 10L.

How many units of labor should this firm hire?

a. 1

b. 2

c. 3

d. 4

3. In a competitive market, market labor supply conditions are given by W = 10,000L and market

labor demand conditions are given by MRP =60,000 – 5,000L, where L is measured in thousands of

workers. What is the equilibrium wage?

a. $10,000

b. $20,000

c. $30,000

d. $40,000

4. Suppose that the labor supply is given by W = 25 + 5L and MRP = 100 – 5L. What is the

equilibrium wage under conditions of monopsony?

a. $25

b. $50

c. $75

d. $100

5. A monopsonist faces a labor supply curve with an elasticity of supply of 0.20. What is the Lerner

Index for this firm as a measure of its monopsony power?

a. 2.2

b. 3.45

c. 0.75

d. 5.

6. An economist estimates two regression equations using data on all MLB teams:

(1) Wins = 10 + 0.01TB

(2) Team Total Revenue = $10,000,000 + $2,000,000Wins

where Wins is the number of team wins and TB is the team’s total bases. Total bases is a measure of

hitting performance and equals singles+ (2 x doubles) + (3 x triples) + (4 x home runs).

What is the MRP for a player with 250 total bases?

a. $4 million.

b. $6.5 million.

c. $5 million.

d. $4.25 million.  

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