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3) You can resubmit a submission until the deadline.

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(1) Employment Location Quotient

Assume there are only 6 counties in a country, and there are only three industries (beer, bread and shirts) that employ people. The employment numbers are given in the Table below:

Calculate the ELQs for the following county and industry combinations:

(a) Bread in County 2 (4 pts)

(b) Beer in County 4 (4 pts)

(c) Shirts in County 3 (4 pts)

Report the ELQs with 3 decimals!

(2) Switching Cost

Suppose a firm located in a non-urban location pays a wage of $64/hour. However, it is assumed that there is a 20% chance that workers incur “switching costs” of $24/h.

a) what is the expected wage?

b) If a firm in an urban cluster wants to match the expected wage (and all else is equal), what should it pay assuming that urban switching cost is only $4 and the chance that switching probability is only 10%. (6 pts)

(3) Labor in Boom and Recession

There is a firm in Walla Walla, an isolated site with a labor force of 40 workers. During boom the firm faces a demand curve of P=200-Q. During recession it faces a curve of 100-0.5Q. Boom and recession are equally likely to occur.

a) How many workers are employed in Walla Walla in boom, how many during recession? What are the corresponding wages? Calculate the consumer surplus of the firm in boom and in recession. What is the expected surplus? (6 pts)