Draw a wage setting curve, with the wage (S/hr) on the y-axis and the employment level on the x-axis. a. Suppose the market wage is $35/hr. Label this market wage on your graph of your wage setting curve, W1 = $35/hr. Label the corresponding level of market employment, E1. b. Draw a second graph of a firm with pricing power that uses labor in their production process. Assume their marginal cost of production is equal to the labor rate of $35/hr. Draw this firms demand curve, marginal revenue curve and marginal cost curve. (Any downward sloping demand curve and marginal revenue curve will do, as long as the y-intercept is above marginal cost (e.g., P = 100-10Q, MR = 100-20Q).) Label the firms profit maximizing level of price and quantity. c. Now, suppose a global pandemic reduces aggregate demand. How does this affect the demand curve the firm faces? How does this affect the production quantity, and labor demanded? Show this on your firm profit maximization graph.d. Assume employees have monthly contracts, such that wages cannot be immediately adjusted in the short-run. Assume that employees can, however, be fired/laid off at any time. How does the reduction in aggregate demand affect wages and the employment level in the short-run? Show this on your wage setting graph. Label the short-run market wage and employment level, W2 and E2. e. Assume that contracts, and thus wages, can be adjusted in the long-run. How does the reduction in aggregate demand affect wages and the employment level in the long-run? Show this on your wage setting graph. Label the short-run market wage and employment level, W2 and E2. f. Explain how market forces will work to restore full employment back to E1 in the long-run.
Draw a wage setting curve, with the wage (S/hr) on the y-axis and the employment level on the x-axis. a. Suppose the market wage is $35/hr. Label this market wage on your graph of your wage setting curve, W1 = $35/hr. Label the corresponding level of market employment, E1. b. Draw a second graph of a firm with pricing power that uses labor in their production process. Assume their marginal cost of production is equal to the labor rate of $35/hr. Draw this firms demand curve, marginal revenue curve and marginal cost curve. (Any downward sloping demand curve and marginal revenue curve will do, as long as the y-intercept is above marginal cost (e.g., P = 100-10Q, MR = 100-20Q).) Label the firms profit maximizing level of price and quantity. c. Now, suppose a global pandemic reduces aggregate demand. How does this affect the demand curve the firm faces? How does this affect the production quantity, and labor demanded? Show this on your firm profit maximization graph.d. Assume employees have monthly contracts, such that wages cannot be immediately adjusted in the short-run. Assume that employees can, however, be fired/laid off at any time. How does the reduction in aggregate demand affect wages and the employment level in the short-run? Show this on your wage setting graph. Label the short-run market wage and employment level, W2 and E2. e. Assume that contracts, and thus wages, can be adjusted in the long-run. How does the reduction in aggregate demand affect wages and the employment level in the long-run? Show this on your wage setting graph. Label the short-run market wage and employment level, W2 and E2. f. Explain how market forces will work to restore full employment back to E1 in the long-run.
Chapter16: The Markets For Labor, Capital, And Land
Section: Chapter Questions
Problem 13P
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Transcribed Image Text:Draw a wage setting curve, with the wage (S/hr) on the y-axis and the employment level on the x-axis. a. Suppose the market wage is $35/hr. Label this market wage on your graph of your wage setting
curve, W1 = $35/hr. Label the corresponding level of market employment, E1. b. Draw a second graph of a firm with pricing power that uses labor in their production process. Assume their marginal cost of
production is equal to the labor rate of $35/hr. Draw this firms demand curve, marginal revenue curve and marginal cost curve. (Any downward sloping demand curve and marginal revenue curve will do, as
long as the y-intercept is above marginal cost (e.g., P = 100-10Q, MR = 100-20Q).) Label the firms profit maximizing level of price and quantity. c. Now, suppose a global pandemic reduces aggregate
demand. How does this affect the demand curve the firm faces? How does this affect the production quantity, and labor demanded? Show this on your firm profit maximization graph. d. Assume employees
have monthly contracts, such that wages cannot be immediately adjusted in the short-run. Assume that employees can, however, be fired/laid off at any time. How does the reduction in aggregate demand
affect wages and the employment level in the short-run? Show this on your wage setting graph. Label the short-run market wage and employment level, W2 and E2. e. Assume that contracts, and thus
wages, can be adjusted in the long-run. How does the reduction in aggregate demand affect wages and the employment level in the long-run? Show this on your wage setting graph. Label the short-run
market wage and employment level, W2 and E2. f. Explain how market forces will work to restore full employment back to E1 in the long-run.
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