LABOR ECONOMICS LOOSE PRINT UPGRADE
20th Edition
ISBN: 9781264115211
Author: BORJAS
Publisher: MCG
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Question
Chapter 4, Problem 7P
To determine
The market clearing wage rate, number of workers employed, and the
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Suppose a firm purchases labor in a competitive labor market and sells its product in a competitive product market. The firm’s elasticity of demand for labor is -0.4. Suppose the wage increases by 5 percent. What will happen to the number of workers hired by the firm? What will happen to the marginal productivity of the last worker hired by the firm?
Consider the labour market for farms during the harvest season. Assume the market is perfectly competitive, with a labour demand function QD = 10-P and a labour supply function QS = 3P, where P is the wage.
a) What are the consumer (farm owners) surplus and producer (farm workers) surplus in equilibrium?
b) What is the price elasticity of demand at the equilibrium?
c) Suppose the government subsides the farm owners (consumers) $1 for every unit of labour purchased. Then, compute the quantity of labour traded in the market, the wage received by the workers and the wage paid by the farm owners.
d) Calculate the consumer surplus and producer surplus in the presence of the subsidy in part c).
A firm faces perfectly elastic demand for its output at a price of $6 per unit of output. The firm, however, faces an upward-sloping labor supply curve of
E = 20w - 120
where E is the number of workers hired each hour and w is the hourly wage rate. Thus, the firm faces an upward-sloped marginal cost of labor curve of
MCE = 6 + 0.1E
Each hour of labor produces five units of output. How many workers should the firm hire each hour to maximize profits? What wage will the firm pay? What are the firm’s hourly profits?
Chapter 4 Solutions
LABOR ECONOMICS LOOSE PRINT UPGRADE
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- 7arrow_forwardQ4. Suppose the firm sells its output according to the following demand schedule: Labor Total Product Product Price 1 X+2 (Z+3)/10 2 18 2.8 29 2.30 4 30 1.20 How many workers will be hired at a wage of $7 to maximize the profit?arrow_forwardSuppose in an industry, firms operate in a perfectly competitive product market and hire labour in a perfectly competitive labour Market labour demand is given by: LD=120-4W, and the supply function of labour is LS=10+8w. Suppose the government imposes a payroll tax rate of $5 market. N per unit of labour hired. What is the new level of employment?arrow_forward
- Consider a perfectly competitive labor market in which the demand for labor isgiven by E = 48,000 – (2,000/3)W, and the supply of labor is given by E = -8,000+ 1,000W. In these equations, E is the number of employee-hours per day, and Wis the hourly wage.a. What is the equilibrium number of employee-hours each day?b. Compute the employer surplus and the workers surplusc. Suppose the government imposes a minimum wage of $24 per hour. Whatwill be the resulting number of employee-hours after the imposition of thisminimum wage?d. What is the number of employee-hours per day hired and the number ofemployeese. Based on the question © Compute the employer surplus and the workerssurplusf. Compute the dead weight loss in this labor market with minimum wageProblem Varrow_forward Time remaining: 01:59:36 Economics Operum is a firm that hires unskilled laborers in a perfectly competitive factor market. (a) Draw side-by-side graphs for the whole labor market and for Operum. Label the market supply SL, the market demand DL, the equilibrium wage WE, the equilibrium quantity QE, the wage paid by Operum WO, and the quantity hired by Operum QO. (b) Is WE greater than, equal to, or less than the marginal factor cost of unskilled labor at QO? Explain. (c) The government institutes an effective minimum wage for unskilled labor. Illustrate this on your graphs from part (a). Label the minimum wage WMin. On the graph for Operum, label the new quantity of unskilled labor employed QMin. (d) Ceteris paribus, how will the minimum wage from part (c) affect the market's demand for unskilled labor and its quantity demanded unskilled labor—will each increase, decrease, or stay the same? Explain. (e) Will the minimum wage cause the marginal revenue product of Operum's last…arrow_forwardSuppose that demand is given by p=10Y^(-1/5) and labor supply is w=4L^(2) If marginal product is 10 and market price is 4 then a. What is the wage in a competitive market b. What is the wage in a market where the firm had monopoly power in the goods market c. What is the wage in a market where the firm has monopoly power in the goods marketarrow_forward
- The graph above shows a labor market and a typical individual firm that is hiring labor from that market. (a) If WM = WF, from what type of labor market does the firm hire its workers? (b) Assume the productivity of workers increases as a result of improvement in technology. What will happen to each of the following in the short run? The market demand for labor (i) The wage rate the firm will pay Explain.arrow_forwardIn a competitive labor market if the wage is $10.00 than the MRC of labor is $10.00. True or false?arrow_forwardSuppose the market supply is given by L=2.8w. Assume the product market is competitive and the product price is p=$12. Also suppose MPL=8.6-0.8L and that the firm has monopsony power. A.Graph the marginal revenue product of labour. The slope of this curve is equal to The vertical intercept of this curve is equal to .Write the formula for the inverse supply of labour and graph the supply curve. The slope of this supply curve is B. For this firm, the fully simplified formula for marginal cost is MC₁ = __ L (Enter the value which completes the formula. Do not enter the variable, it has been given) Illustrate this market graphically, including accurate numbers for slopes and intercepts. Write the condition which the monopsonist's optimal choice of labour must satisfy. This monopsonist will choose employment level . At this employment level, the firm will offer the wage $ , and the value marginal product of labour is $ The average cost of labour for this monopsonist is $ and the firm's…arrow_forward
- Hand written solutions are strictly prohibitedarrow_forwardAssume a monopsony uses only one factor, labor, L, to produce a final good, Q, which it sells in a competitive market at the price, p = 1. The inverse supply curve for labor is w = 20 + 2L. If the monopsony's labor demand curve is w = 70 - L, how many units of labor does it hire and at what wage? What value does the monopsony place on the last worker hired? How does the monopsony equilibrium %3D compare to the competitive equilibrium?arrow_forwardQuestion Three Assume that the labour market is characterized by monopsony power. Illustrate and explain how the government can maximize employment levels by imposing a minimum wage. The marginal revenue product of labor at the local sawmill is MRPL = 20 - 0.5L, where L = the number of workers. If the wage of sawmill workers is K10 per hour, then how many workers will the mill hire? What factors that determine demand for labour by the firm? Who are the main actors in the labour markets? What are their roles?arrow_forward
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