ECON6049 : Economic Analysis -  Roberto Case Study - Economics Assignment Help

Assignment Task :

1)  Roberto works in a factory making electric cars. Currently, his firm pays him $35 per hour and he works 35 hours per week. Each hour he works he experiences disutility of effort from working valued at $5 per hour. In addition, should Roberto lose his job the government will pay him an unemployment benefit of $15 per hour, for each hour he would otherwise work each week, for a maximum of 20 weeks. Prior to the coronavirus pandemic if Roberto lost his job the expected duration of unemployment before he would find another job is 10 weeks. 
(a)Calculate Roberto’s 
(i) employment rent per hour and his 
(ii) total employment rent. 

b) With the advent of the coronavirus pandemic the economy has gone into recession causing Roberto’s expected duration of unemployment to increase to 30 weeks. 

Furthermore, the dramatic increase in the expected duration of unemployment has resulted in psychological stress from unemployment valued at $3 per hour.

In the light of these developments re-calculate Roberto’s:
(i) Employment rent per hour  
(ii) Total employment rent  
 
(c) Describe the relationship between the size of the employment rent and 
(i) the expected duration of unemployment 
(ii) the size of the unemployment benefit per hour and 
(iii) the size of the psychological cost of unemployment per hour. 

2) Consider the Managing Director (MD) of a firm that produces a differentiated product which faces little competition from a few close substitute products. Recently, the Managing Director has been informed by government officials that a specific (per unit) tax will be levied on the firm’s product in the new financial year that is still 6 months away. The Managing Director during a consultation with you, his economic advisor, states that because the firm produces a product with few close substitutes it is a price-setter and thus will be able to pass on to its customers the full amount of the tax. He asks you to confirm whether his thinking on this matter is correct. Explain what you will tell the Managing Director.

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