2. Suppose that a competitive firm has a total cost function C(q) = 450 + 15q + 2q2 and a
marginal cost function MC(q) = 15 + 4q. If the market price is P = $115 per unit, find the level
of output produced by the firm and the level of profit.
3. Suppose the supply of low-skilled labor is given by
L
S
= 10w
Where LS is the quantity of low-skilled labor (in millions of persons employed each year), and
w is the wage rate (in dollars per hour). The demand for labor is given by
L
D = 80 – 10w
(a) What will be the free-market wage rate and employment level?
(b) Suppose the government sets a minimum wage of $5 per hour. How many people
would then be employed?