5. Consider the labor market in an imaginary coastal town called Nutsland. There is only one buyer in that market, namely Nutsland Farm that operates with a production 1² function of Q=L - The supply of labor is given as L-w-2, where w is the wage. On the output side, Olive Farm takes the price P =20 TL/kg for its olive oil as given due to intense competition in that market. 40 a. Find Olive Farm's profit-maximizing labor demand. What wage does it have to pay? b. What would be the wage in Nutsland if the market were competitive? c. Compare the welfare implications of a) versus b). Calculate the deadweight loss and show it on a graph.

5. Consider the labor market in an imaginary coastal town called Nutsland. There is only one buyer in that market, namely Nutsland Farm that operates with a production 1² function of Q=L - The supply of labor is given as L-w-2, where w is the wage. On the output side, Olive Farm takes the price P =20 TL/kg for its olive oil as given due to intense competition in that market. 40 a. Find Olive Farm's profit-maximizing labor demand. What wage does it have to pay? b. What would be the wage in Nutsland if the market were competitive? c. Compare the welfare implications of a) versus b). Calculate the deadweight loss and show it on a graph.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter16: Labor Markets

Section: Chapter Questions

Problem 16.6P

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