Exercises

(1) The first-round wage-bill loss is $3 \cdot 100 = 300$; consumption falls by $0.6 \cdot 300 = 180$. Through the multiplier $\frac{1}{1 - 0.6} = 2.5$, output falls by $180 \cdot 2.5 = 450$, from $1500$ to $1050$, and jobs land at $1050 / 15 = 70$ — $30$ jobs gone.

(2) The final wage bill is the new wage $7$ times the surviving jobs $70$: $490$.

The fall is $510$, nearly twice the intended $300$ — when wages and jobs fall together, the wage bill feeds on itself.

Through the one-firm lens the answer flips: the same cut lets one firm hire $L = 60 - 4 \cdot 7 = 32$, twelve MORE workers.

(1) The edge is where the standing-still loss $2\delta^2$ equals the menu cost $8$: $\delta^* = \sqrt{8 / 2} = 2$. Shocks up to $2$ are cheaper to swallow; past $2$, cheaper to reprint.

(2) At $\delta = 1.5$: the loss $2 \cdot 1.5^2 = 4.5 < 8$, so the price stays at $10$ and volume falls to $50 - 5 \cdot 1.5 = 42.5$. At $\delta = 2.5$: the loss $2 \cdot 2.5^2 = 12.5 > 8$, so the price drops to $7.5$ and volume recovers to $50$.

(3) Firms whose shock lands inside the band edge $2$ keep their price.

Of the scene's shock list, from $0.25$ to $4$, eight values are at most $2$, so $8$ of $12$ firms $(67\%)$ freeze their price and let quantities take the hit.

The bigger the menu cost, the bigger that share — and the stickier the whole economy's prices.