Chapter 71, Problem 2FRQ

a)

To determine

The correctly labeled side-by-side graphs of delivery driver supply and demand in a perfectly competitive labor market

Explanation of Solution

As delivery drivers are hired from a perfect labor market, the graph would be represented as:

Economics Concept Introduction

Introduction: There are a number of buyers and sellers in the perfectly competitive labor market but they do not impact the market wage rate. When the quantity demanded and supply of goods are equal then this situation is called market equilibrium.

b)

To determine

The effect of an increase in the supply of delivery drivers on the equilibrium wage and the number of drivers hired both by the firm and in the delivery driver market as a whole.

Explanation of Solution

As delivery drivers are hired from a perfect labor market then, the graph would be represented as:

When the supply of the delivery driver is increased in the market, a new equilibrium is found which is denoted by E2 on the graph. Here, the new demand curve intersects the new supply curve or the new supply is equal to the new demand at this point.

For the entire delivery market, marginal cost will increase with the supply of new drivers, and equilibrium is found where MR equals the MC or MR cuts MC. The number of drivers is increased at the level of a new equilibrium.

Economics Concept Introduction

Introduction: There are a number of buyers and sellers in the perfectly competitive labor market but they do not impact the market wage rate. When the quantity demanded and supply of goods are equal, this situation is called market equilibrium.