**Optimization in Competitive Markets****Problem 1: Labor Hiring Decision of a Profit-Maximizing Firm**A profit-maximizing firm in a competitive market makes the following profit:\[ \pi = \frac{p}{2w + v} \]where $ p $ is the price for the firm's output and $ w $ and $ v $ are the costs of labor and capital, respectively. How much labor does the firm hire?**Options:**a. $ 2p $b. $ \frac{2p}{(2w+v)^2} $c. $ \frac{p}{w} $d. $ \frac{1}{2w+v} $**Solution:**Option (b): $ \frac{2p}{(2w+v)^2} $---**Problem 2: Consumption Behavior with Giffen Goods**Celeste only consumes apples and oranges, and apples are a Giffen good for her. If her income increases by 1%, how does her consumption of oranges change?**Options:**a. Decreasesb. Increases by 1%c. Increases more than 1%d. Increases less than 1%**Solution:**Option (c): Increases more than 1%---*Explanation:*- **Giffen Goods:** A Giffen good is an inferior good for which an increase in its price leads to an increase in its quantity demanded, due to the stronger income effect overpowering the substitution effect.- **Income Effect:** Represents how a change in income affects the quantity demanded of a good.- **Substitution Effect:** Occurs when a good's price rises and consumers switch to cheaper alternatives.In the case of Celeste, if apples are a Giffen good and her income increases, she will allocate more towards oranges (a normal good) leading to a substantial increase in her consumption of oranges, as indicated by option (c).

1) Where, p is the firm's output price, w is the costs of labor and v is the cost of capital. Now,…

where p is thế pri 2w+v A profit-maximizing firm in a competitive market makes the following profit, = firm's output and w and v are the costs of labor and capital, respectively. How much labor does the firm hire? O a. 2p 2p (2w+v Ob. O c. Od. 2w+v Clear my choice Celeste only consumes apples and oranges, and apples are a Giffen good for her. If her income increases by 1%, how does her consumption of oranges change? Decreases O b. Increases 1% Increases more than 1% O d. Increases less than 1% Clear my choice

where p is thế pri 2w+v A profit-maximizing firm in a competitive market makes the following profit, = firm's output and w and v are the costs of labor and capital, respectively. How much labor does the firm hire? O a. 2p 2p (2w+v Ob. O c. Od. 2w+v Clear my choice Celeste only consumes apples and oranges, and apples are a Giffen good for her. If her income increases by 1%, how does her consumption of oranges change? Decreases O b. Increases 1% Increases more than 1% O d. Increases less than 1% Clear my choice

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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