As with the own-wage elasticity of demand for labor, the elasticity of supply of labor can be similarly classified. the elasticity of supply of labor is elastic if elasticity is greater than 1. it is inelastic if the elasticity is less than 1, and it is unitary elastic if the elasticity of supply equals 1. for each of the following occupations, calculate the elasticity of supply, and state whether the supply of labor is elastic, inelastic, or unitary elastic. es and w are the original supply of workers and wage. e's and w' are the new supply of workers and wage. a. %δes = 7, %δw = 3 b. es = 120, w = $8 e's = 90, w' = $6 c. es = 100, w = $5 e's = 120, w' = $7

1. consider a two-firm industry. firm 1 (the incumbent) chooses a level of output qı. firm 2 (the potential entrant) observes qı and then chooses its level of output q2. the demand for the product is p 100 q, where q is the total output sold by the two firms which equals qi +q2. assume that the marginal cost of each firm is zero. a) find the subgame perfect equilibrium levels of qi and q2 keeping in mind that firm 1 chooses qi first and firm 2 observes qi and chooses its q2. find the profits of the two firms-n1 and t2- in the subgame perfect equilibrium. how do these numbers differ from the cournot equilibrium? b) for what level of qi would firm 2 be deterred from entering? would a rational firm 1 have an incentive to choose this level of qi? which entry condition does this market have: blockaded, deterred, or accommodated? now suppose that firm 2 has to incur a fixed cost of entry, f> 0. c) for what values of f will entry be blockaded? d) find out the entry deterring level of q, denoted by q1', a expression for firm l's profit, when entry is deterred, as a function of f. for what values of f would firm 1 use an entry deterring strategy?