Ithough individual labor supply curves, such as the one own, can be backward bending, the market labor supply rve will tend to be upward sloping across all wage rates.
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- Explain how the wage can adjust to balance thesupply and demand for labor while simultaneouslyequaling the value of the marginal product oflabor.Hannah’s wage rate is initially $10 per hour and she maximises her utility by supplying 8hours of work. Subsequently, her wage rate increases to $15 per hour and her newequilibrium position corresponds to 9 hours of work. It is noted that the income effect (IE)causes the labour supply to change by 1 hour and the substitution effect (SE) causes thelabour supply to change by 2 hours. How to draw in diagram, to show the IE and SE?The substitution effect of a change in wage rate on a firm's demand for labor input will be more significant EC68 O the greater the change in output. O the flatter are the firm's isoquants. O the larger the quantity of labor employed. O the more sharply curved are the firm's isoquants.
- 25 of 38 Jill works as a computer specialist for a local manufacturing firm. If Jill receives a raise in her hourly wage and decides she would like to increase her hours of work, we know that: O A. her income effect is greater than her substitution effect. O B. her substitution effect is greater than her income effect. O C. her income and substitution effect reinforce each other. O D. her income and substitution effects are equal. UnsureWhat Is marginal rate of substitution?4. Given the following graph, briefly respond to the questions appearing directly below this graph. Сapital A 14 10 3. Isoquant for Output = 60 C %3D 3. Isoquant for E/Output = 40 %3D 2 3 9 11 Labor a. For an output level of 40 units, calculate the marginal rate of technical substitution between points A and B. b. Also for an output level of 40 units, calculate the marginal rate of technical substitution be- tween points D and E.
- The lines on the graph are budget constraints, showing the tradeoff between labor and leisure. Suppose that when the wage changes, an individual chooses to move from point A to another point on the graph. For each of the other points, where would it belong on the backward bending labor supply curve? Backward‑bendingportionVerticalportionUpward‑slopingportion Answer Bank B D F C EDamon's wage rises. The substitution effect would cause him to his work hours, and the income effect would cause him to his work hours. decrease; increase O increase; increase increase; decrease O decrease; decreaseAccording to the Wall Street Journal, Mitsubishi Motors recently announced a major restructuringplan in an attempt to reverse declining global sales. Suppose that as part of the restructuring planMitsubishi conducts an analysis of how labour and capital are used in its production process. Priorto restructuring Mitsubishi’s marginal rate of technical substitution is 0.15 ( in absolute value). Tohire workers. Suppose that Mitsubishi must pay the competitive hourly wage of US$ 15. In thestudy of production process and markets where capital is procured, suppose that Mitsubishidetermine that its marginal productivity of capital is 0.5 small cars per hour at its new targetedlevel of output and that capital is procured in a highly competitive market. The same studyindicates that the average selling price of Mitsubishi’s smallest car is US$ 9500. Determine therate at which Mitsubishi can rent capital and marginal productivity of labour at its new targetedlevel of output. To minimize costs…
- Define marginal product of labor and value of the marginal product oflabor. • Describe how a competitive, profit-maximizing firm decides how many workersto hire.7. Use a graph and derive the labor supply curve of a worker. Explain in detail.6. Suppose that the representative consumer's div- idend income increases, and his or her wage rate falls at the same time. Determine the effects on consumption and labor supply, and explain your results in terms of income and substitution effects.