Consider an economy whose real marginal product of labor MPN is as follows: MPN = A(1000 – 0.2N) Where A is total factor productivity and N is the amount of labor used. The labor supply NS is given by NS = 500 + 5(1 – t)w Where t is the payroll tax rate and w is the real wage. 1. Suppose A = 1 and t = 0. Assuming the firm maximizes profit, derive an expression for labor demand as a function of w. 2. Suppose A = 1 and t = 0. Quickly graph labor supply and labor demand, showing their intercepts on the horizonal axis (for employment). What is the equilibrium real wage and employment? 3. Suppose A = 1 and suppose the government taxes worker to fund a union, with t = 0.50. Express labor supply and demand as functions of w. Then quickly graph them, showing the difference from Part 2. Briefly explain the difference.
Consider an economy whose real marginal product of labor MPN is as follows: MPN = A(1000 – 0.2N) Where A is total factor productivity and N is the amount of labor used. The labor supply NS is given by NS = 500 + 5(1 – t)w Where t is the payroll tax rate and w is the real wage. 1. Suppose A = 1 and t = 0. Assuming the firm maximizes profit, derive an expression for labor demand as a function of w. 2. Suppose A = 1 and t = 0. Quickly graph labor supply and labor demand, showing their intercepts on the horizonal axis (for employment). What is the equilibrium real wage and employment? 3. Suppose A = 1 and suppose the government taxes worker to fund a union, with t = 0.50. Express labor supply and demand as functions of w. Then quickly graph them, showing the difference from Part 2. Briefly explain the difference.
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Transcribed Image Text:Consider an economy whose real marginal product of labor MPN is as follows:
MPN = A(1000 – 0.2N)
Where A is total factor productivity and N is the amount of labor used.
The labor supply NS is given by
NS = 500 + 5(1 – t)w
Where t is the payroll tax rate and w is the real wage.
1. Suppose A = 1 and t = 0. Assuming the firm maximizes profit, derive an expression for labor
demand as a function of w.
2. Suppose A = 1 and t = 0. Quickly graph labor supply and labor demand, showing their
intercepts on the horizonal axis (for employment). What is the equilibrium real wage and
employment?
3. Suppose A = 1 and suppose the government taxes worker to fund a union, with t = 0.50.
Express labor supply and demand as functions of w. Then quickly graph them, showing the
difference from Part 2. Briefly explain the difference.
4. What is the equilibrium real wage and employment in Part 3? What is the effect of the tax on
employment, and why?
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