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In: Economics

a) Gail works in a flower shop, where she produces 10 floral arrangements per hour. She...

a) Gail works in a flower shop, where she produces 10 floral arrangements per hour. She is paid $15 an hour for the first eight hours she works and $20 an hour for each additional hour she works. What is the firm’s cost function? What are its AC, AVC, and MC functions? Draw the AC, AVC, and MC curves.

b) Suppose that the government subsidizes the cost of workers by paying for 25% of the wage (the rate offered by the U.S. government in the late 1970s under the New Jobs Tax Credit program). What effect will this subsidy have on the firm’s choice of labor and capital to produce a given level of output? What happens if both capital and labor are subsidized at 25%?

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Rahul Sunny answered 2 years ago
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