Draw a wage setting curve, with the wage (S/hr) on the y-axis and the employment level on the x-axis. a. Suppose the market wage is $35/hr. Label this market wage on your graph of your wage setting curve, W1 = $35/hr. Label the corresponding level of market employment, E1. b. Draw a second graph of a firm with pricing power that uses labor in their production process. Assume their marginal cost of production is equal to the labor rate of $35/hr. Draw this firms demand curve, marginal revenue curve and marginal cost curve. (Any downward sloping demand curve and marginal revenue curve will do, as long as the y-intercept is above marginal cost (e.g., P = 100-10Q, MR = 100-20Q).) Label the firms profit maximizing level of price and quantity. c. Now, suppose a global pandemic reduces aggregate demand. How does this affect the demand curve the firm faces? How does this affect the production quantity, and labor demanded? Show this on your firm profit maximization graph.d. Assume employees have monthly contracts, such that wages cannot be immediately adjusted in the short-run. Assume that employees can, however, be fired/laid off at any time. How does the reduction in aggregate demand affect wages and the employment level in the short-run? Show this on your wage setting graph. Label the short-run market wage and employment level, W2 and E2. e. Assume that contracts, and thus wages, can be adjusted in the long-run. How does the reduction in aggregate demand affect wages and the employment level in the long-run? Show this on your wage setting graph. Label the short-run market wage and employment level, W2 and E2. f. Explain how market forces will work to restore full employment back to E1 in the long-run.
Draw a wage setting curve, with the wage (S/hr) on the y-axis and the employment level on the x-axis. a. Suppose the market wage is $35/hr. Label this market wage on your graph of your wage setting curve, W1 = $35/hr. Label the corresponding level of market employment, E1. b. Draw a second graph of a firm with pricing power that uses labor in their production process. Assume their marginal cost of production is equal to the labor rate of $35/hr. Draw this firms demand curve, marginal revenue curve and marginal cost curve. (Any downward sloping demand curve and marginal revenue curve will do, as long as the y-intercept is above marginal cost (e.g., P = 100-10Q, MR = 100-20Q).) Label the firms profit maximizing level of price and quantity. c. Now, suppose a global pandemic reduces aggregate demand. How does this affect the demand curve the firm faces? How does this affect the production quantity, and labor demanded? Show this on your firm profit maximization graph.d. Assume employees have monthly contracts, such that wages cannot be immediately adjusted in the short-run. Assume that employees can, however, be fired/laid off at any time. How does the reduction in aggregate demand affect wages and the employment level in the short-run? Show this on your wage setting graph. Label the short-run market wage and employment level, W2 and E2. e. Assume that contracts, and thus wages, can be adjusted in the long-run. How does the reduction in aggregate demand affect wages and the employment level in the long-run? Show this on your wage setting graph. Label the short-run market wage and employment level, W2 and E2. f. Explain how market forces will work to restore full employment back to E1 in the long-run.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:Draw a wage setting curve, with the wage (S/hr) on the y-axis and the employment level on the x-axis. a. Suppose the market wage is $35/hr. Label this market wage on your graph of your wage setting
curve, W1 = $35/hr. Label the corresponding level of market employment, E1. b. Draw a second graph of a firm with pricing power that uses labor in their production process. Assume their marginal cost of
production is equal to the labor rate of $35/hr. Draw this firms demand curve, marginal revenue curve and marginal cost curve. (Any downward sloping demand curve and marginal revenue curve will do, as
long as the y-intercept is above marginal cost (e.g., P = 100-10Q, MR = 100-20Q).) Label the firms profit maximizing level of price and quantity. c. Now, suppose a global pandemic reduces aggregate
demand. How does this affect the demand curve the firm faces? How does this affect the production quantity, and labor demanded? Show this on your firm profit maximization graph. d. Assume employees
have monthly contracts, such that wages cannot be immediately adjusted in the short-run. Assume that employees can, however, be fired/laid off at any time. How does the reduction in aggregate demand
affect wages and the employment level in the short-run? Show this on your wage setting graph. Label the short-run market wage and employment level, W2 and E2. e. Assume that contracts, and thus
wages, can be adjusted in the long-run. How does the reduction in aggregate demand affect wages and the employment level in the long-run? Show this on your wage setting graph. Label the short-run
market wage and employment level, W2 and E2. f. Explain how market forces will work to restore full employment back to E1 in the long-run.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 6 steps with 4 images
Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education