Labor in Boom and Recession Assume there is a labor force of 20 workers at an isolated site. During boom the firm faces a demand curve of P=100-Q. During recession it faces a curve of 80-2Q. Boom and recession are equally likely to occur. a) How many workers are employed 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? b) Now assume a large cluster where the labor supply is infinitely elastic. Assuming the same demand curves as in the Question above and the average wage of the isolated site (also from the Question above), how many workers are employed in boom? How many are employed during recession? What are the corresponding wages? Calculate the consumer surplus of the firm in boom and in recession. What is the expected surplus?

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Exercise 18-15 sheffield appliance center is an experienced home appliance dealer. sheffield appliance center also offers a number of services for the home appliances that it sells. assume that sheffield appliance center sells ovens on a standalone basis. sheffield appliance center also sells installation services and maintenance services for ovens. however, sheffield appliance center does not offer installation or maintenance services to customers who buy ovens from other vendors. pricing for ovens is as follows. oven only $790 oven with installation service 850 oven with maintenance services 970 oven with installation and maintenance services 990 in each instance in which maintenance services are provided, the maintenance service is separately priced within the arrangement at $180. additionally, the incremental amount charged by sheffield appliance center for installation approximates the amount charged by independent third parties. ovens are sold subject to a general right of return. if a customer purchases an oven with installation and/or maintenance services, in the event sheffield appliance center does not complete the service satisfactorily, the customer is only entitled to a refund of the portion of the fee that exceeds $790. assume that a customer purchases an oven with both installation and maintenance services for $990. (b) indicate the amount of revenue that should be allocated to the oven, the installation, and to the maintenance contract.