Suppose the marginal revenue from search is
MR = 50 - 1.5w,
where w is the wage offer at hand. The marginal cost of search is
MC = 5 + w.
(a) Why is the marginal revenue from search a negative function of the wage offer at hand?
(b) Can you give an economic interpretation of the intercept in the marginal cost equation; in other words, what does it mean to say that the intercept equals $5? Similarly, what does it mean to say that the slope in the marginal cost equation equals one dollar?
(c) What is the worker's asking wage? Will a worker accept a job offer of $15?
(d) Suppose UI benefits are reduced, causing the marginal cost of search to increase to
MC = 20 + w. What is the new asking wage? Will the worker accept a job offer of $15?