Assume that we are in a long-run environment and a firm employs two groups of workers, medium-skilled and low-skilled (there is no capital used by this firm). Low-skilled workers are paid $7.25 per hour, whereas medium-skilled workers are paid $17. Assume that both groups of workers are normal inputs into the production process and the government increases the minimum wage to $15. Workers in the medium-skilled group are happy because they believe that the firm will increase their work hours now. Are the medium-skilled workers correct in their assessment? Explain why or why not. Do firms respond differently in the long run to a change in the minimum wage if minimum wage workers are considered normal inputs or inferior inputs into the production process? Fully explain your answer.

1) The labour market is an essential component of every economy since it allows businesses and…

Answered: Assume that we are in a long-run…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Assume that we are in a long-run environment and a firm employs two groups of workers, medium-skilled and low-skilled (there is no capital used by this firm). Low-skilled workers are paid $7.25 per hour, whereas medium-skilled workers are paid $17. Assume that both groups of workers are normal inputs into the production process and the government increases the minimum wage to $15. Workers in the medium-skilled group are happy because they believe that the firm will increase their work hours now. Are the medium-skilled workers correct in their assessment? Explain why or why not.

Do firms respond differently in the long run to a change in the minimum wage if minimum wage workers are considered normal inputs or inferior inputs into the production process? Fully explain your answer.

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