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Answer:
Labor in Boom and Recession.
There is a labour force of 20 workers at an isolated site
=> boom the firm faces a demand curve of P=100-Q.
=> recession curve of 80-2Q.
a)
During recession the number employed fined =20
wage rate=100-20
=80
During recession the number employed fined =20
wage rate=80-2*20
=80-60
=$20
cs is in boom (employers gain)= 1/2*(100-80)*20
=1/2*20*20
=200
cs is recession = 1/2*(80-20)*20
=1/2*60*20
=600
Expected surplus =1/2*200 +1/2*600
=100+300
=400
Expected wage =1/2*80 +1/2*20
=40+10
=50
b)
At a wage of 50 , number of workers fined in boom is 50=100-Q
Q=50 workers
in recession firm will hire =50=80-2Q
2Q=80-50
Q=30/2
Q=15 workers
=> wage is same 50
cs boom =1/2*(100-50)*50
=1/2*50*50
=1250
cs recession=1/2*(80-50)*15
=1/2*15*15
=225
Expected surplus =1250+225/2
=1475/2
=737.5
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