• Home
  • Blog
  • ECON 100B UC Santa Barbara Marginal Value Product & Lemon Model Questions

ECON 100B UC Santa Barbara Marginal Value Product & Lemon Model Questions

0 comments

1.Suppose a firm produces output under perfect competition from labor and capital, and the wage the firm pays for labor falls. Explain why the firm will hire labor to the point where the marginal value product of labor equals the wage both before and after the fall in the wage, but the firm’s adjustment to the lower wage is not simply a shift along the initial marginal value product curve for labor.

2. A person who buys a new car, drives it home, and then decides after a week or two to sell it typically ends up with a large loss: the price they sell it for is typically much lower than the original purchase price. Explain this with the Lemons model.

3. A coronavirus vaccine that prevents infection may soon become available. Describe the positive externality such a vaccine generates, and explain why the market outcome is therefore that too few people get vaccinated. You may assume vaccine supply occurs at a constant marginal cost.

About the Author

Follow me


{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}