Following the 2016 Major League Baseball season, the market for home run hitters who were free agents and available to sign with any team was unexpectedly quiet. Players such as Edwin Encarnacion and Chris Carter signed for lower salaries and for fewer years than either they or their agents had expected. Here are two explanations for the relatively low salary offers:

1. Mark Shapiro, president and CEO of the Toronto Blue Jays, explained, “There has been a shift in how people value defense and some of the other aspects of players’ games.”

2. Brian Cashman, general manager of the New York Yankees, blamed the weak market on a greater-thannormal number of power hitters who were free agents: “The chessboard was set up with more participants than there were chairs.”

Draw two graphs depicting the demand and supply for home run hitters. In the first graph, illustrate a change in the market that is consistent with Mark Shapiro’s explanation for the decline in salaries. In the second graph, illustrate a change in the market that is consistent with Brian Cashman’s explanation for the decline in salaries. Briefly explain your graphs.

An article in the Wall Street Journal discussed why the hotel workers’ union in New York City was against a proposal for more hotels to be built in Midtown Manhattan: “The union is concerned that rapid hotel development shrinks room prices and profit margins, driving down the wages of its members.” Is the union’s reasoning consistent with the economic analysis in this chapter? Briefly explain.

Uber, the ride-hailing service, increases the price of a ride when demand increases, as happens, for instance, on New Year’s Eve or during a snowstorm. An article in the New York Times discussed how new Uber drivers respond to fluctuations in the wages they earn: “Many of these drivers appeared to have an income goal in mind and stopped when they were near it, causing them to knock off sooner when their hourly wage was high and to work longer when their wage was low.” On the basis of this information, what does the labor supply curve for new Uber drivers look like? Draw a graph to illustrate your answer

Adam operates a pin factory. Suppose that Adam faces the situation shown in the following table and that the cost of renting a machine is $550 per week.

Fill in the missing values in the table and determine the profit-maximizing number of machines for Adam to rent. Briefly explain why renting this number of machines is profit maximizing.

State whether each of the following events will result in a movement along the market supply curve of agricultural labor in the United States or whether it will cause the market supply curve of agricultural labor to shift. If the supply curve shifts, indicate whether it will shift to the left or to the right and draw a graph to illustrate the shift.

The law is changed to allow for unlimited immigration into the United States.

State whether each of the following events will result in a movement along the market supply curve of agricultural labor in the United States or whether it will cause the market supply curve of agricultural labor to shift. If the supply curve shifts, indicate whether it will shift to the left or to the right and draw a graph to illustrate the shift.

Wages outside agriculture increase.

The late Nobel Laureate economist George Stigler wrote that the “purely ‘economic’ case against monopoly is that it reduces aggregate economic welfare. When the monopolist raises prices above the competitive level in order to reap his monopoly profits, customers buy less of the product, less is produced, and society as a whole is worse off.”

Draw a graph similar to Figure 15.5 on page 520. In your graph indicate the price that is at what Stigler refers to as “the competitive level.” Compare this price to the price at which the firm earns “monopoly profits.”

At one point, Time Warner and the Walt Disney Company discussed merging their news operations. Time Warner owns Cable News Network (CNN) and Disney owns ABC News. After analyzing the situation, the companies decided that a combined news operation would have higher average costs than either CNN or ABC News had separately. Use a longrun average cost curve graph to illustrate why the companies did not merge their news operations. Source: Martin Peers and Joe Flint, "AOL. Calls off CNN-ABC Deal, Seeing Operating Difficulties," wall Street journal, February 14, 2003.

In describing the optimal size of an investment fund, a writer for the Wall Street Journal observed: at first, bigger is better for both investors and managers. Managing money is expensive. Small funds have many fixed cost. If a fund is small, it can’t generate enough fees to cover costs. The result is that in terms of performance, funds should want to get big to cover costs and maximize returns, but not so big that diseconomies of scale erode returns. Draw a graph of a long-run average cost curve for a typical firm in the investment fund industry. In your graph, draw and label the following.

A short-run average total cost curve for an investment fund that has reached minimum efficient scale

[Related to Solved Problem 11.6 on page 389] At one point, Time Warner and the Walt Disney Company discussed merging their news operations. Time Warner owns Cable News Network (CNN), and Disney owns ABC News. After analyzing the situation, the companies decided that a combined news operation would have higher average costs than either CNN or ABC News had separately. Use a long-run average cost curve graph to illustrate why the companies did not merge their news operations.

In describing the optimal size of an investment fund, a writer for the Wall Street Journal observed: at first, bigger is better for both investors and managers. Managing money is expensive. Small funds have many fixed cost. If a fund is small, it can’t generate enough fees to cover costs. The result is that in terms of performance, funds should want to get big to cover costs and maximize returns, but not so big that diseconomies of scale erode returns. Draw a graph of a long-run average cost curve for a typical firm in the investment fund industry. In your graph, draw and label the following.

A range of output within which investment funds experience constant returns to scale

[Related to the Apply the Concept on page 578] A business columnist for the New York Times estimated that the wealth of J.K. Rowling, author of the Harry Potter novels, at $1.2 billion. The columnist observed, “Along with other famous authors, entertainers and sports stars, Ms. Rowling has also benefited from globalization and technology advances.” What technology advances is he likely referring to? Why would those advances increase Rowling’s wealth compared with the wealth of a similarly popular author of, say, the 1960s?

[Related to Solved Problem 17.1 on page 566] Fill in the missing values in the following table for Terrell’s Televisions.

Use the information in the table to draw a graph like Figure 17.1 on page 565 that shows the demand for labor by this firm. Be sure to indicate the profitmaximizing quantity of labor on your graph.

In the Immigration Act of 1990, Congress established the H-1B visa program, intended to allow U.S. firms to hire foreign workers in areas such as the physical sciences, computer programing, and engineering. John Bound and Nicolas Morales of the University of Michigan and Gaurav Khanna of the University of California, San Diego, studied the effects of the H-1B program on the market for computer science (CS) workers in the United States in the years from 1994 to 2001, during which the Internet first became important for the operations of U.S. firms. They found that the visa program may have had effects on labor demand in two ways: (1) if immigrant CS workers were responsible for innovations, such as improving the functioning of Web sites, that required more CS workers to be hired, and (2) if U.S. firms hiring immigrant CS workers reduced the likelihood that the firms would have hired foreign technology firms to carry out CS work. They noted, “If computer scientists are a sufficient spur to innovation, or if domestic employers can readily offshore CS work, any negative effects that an increase in the number of foreign CS workers might have on the domestic high-skill workforce would be offset by increases in the domestic demand for computer scientists.”

The authors estimate that the H-1B visa program resulted in a reduction of about 4 percent in the wages U.S. CS workers would otherwise have received. Does this conclusion allow you to determine whether the program had a greater effect on labor demand or on labor supply? Briefly explain.