Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

The demand for labor by an industry is given by the curve L = 1200 - 10w, where L is the labor demanded per day and w is the wage rate. The supply curve is given by L = 20w. What is the equilibrium wage rate and quantity of labor hired? What is the economic rent earned by workers?

Short Answer

Expert verified

The equilibrium wage rate will be $40, and the quantity of labor hired will be 800 laborers. The economic rent will be $16,000.

Step by step solution

01

Explanation

The equilibrium wage and quantity of labor hired are calculated below:

Given,LD= 1,200 - 10wLS= 20wEquilibrium :LD=LS1,200 - 10w = 20w30w = 1,200w = $ 40Thus, L = 1,200 - 1040= 1,200 - 400= 800

The wage rate will be $40, and 800 laborers will be hired.

The economic rent is calculated below:

The economic rent is the labor surplus, the area above the minimum level needed by the laborers to work.

EconomicRent=0.5×$40×800=$16000

The economic rent will be $16,000.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

A firm uses a single input, labor, to produce output q according to the production function q = 8√L. The commodity sells for \(150 per unit and the wage rate is \)75 per hour.

  1. Find the profit-maximizing quantity of L.
  2. Find the profit-maximizing quantity of q.
  3. What is the maximum profit?
  4. Suppose now that the firm is taxed \(30 per unit of output and that the wage rate is subsidized at a rate of \)15 per hour. Assume that the firm is a price taker, so the price of the product remains at $150. Find the new profit-maximizing levels of L, q, and profit.
  5. Now suppose that the firm is required to pay a20-percent tax on its profits. Find the new profit-maximizing levels of L, q, and profit.

Using the same information as in Exercise 8, suppose now that the only labor available is controlled by a monopolistic labor union that wishes to maximize the rent earned by union members. What will be the quantity of labor employed and the wage rate? How does your answer compare with your answer to Exercise 8? Discuss. (Hint: The union’s marginal revenue curve is given by MR = 120 - 0.2L.)

Question: The demands for the factors of production listed below have increased. What can you conclude about changes in the demands for the related consumer goods? If demands for the consumer goods remain unchanged, what other explanation is there for an increase in derived demands for these items?

  1. Computer memory chips

  2. Jet fuel for passenger planes

  3. Paper used for newsprint

  4. Aluminum used for beverage cans

Using your knowledge of marginal revenue product, explain the following:

  1. A famous tennis star is paid \(200,000 for appearing in a 30-second television commercial. The actor who plays his doubles partner is paid \)500.

  2. The president of an ailing savings and loan is paid not to stay in his job for the last two years of his contract.

  3. A jumbo jet carrying 400 passengers is priced higher than a 250-passenger model even though both aircraft cost the same to manufacture.

You are offered the choice of two payment streams: (a) \(150 paid one year from now and \)150 paid two years from now; (b) \(130 paid one year from now and \)160 paid two years from now. Which payment stream would you prefer if the interest rate is 5 percent? If it is 15 percent?

See all solutions

Recommended explanations on Economics Textbooks

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free