
Subpart (a):
Wage rate.
Subpart (a):

Explanation of Solution
Daily wage can be derived as follows.
Wage is
Rearrange the wage equation in terms of labor
Labor demand is
Subpart (b):
Calculate wage rate, profit and income.
Subpart (b):

Explanation of Solution
Wage level with 200 labors can be calculated as follows.
Wage is 160.
Number of labor demanded by each firm can be calculated as follows.
Each firm employs 10 labors.
Profit can be calculated as follows.
Total profit for each firm is 200.
Total income can be calculated as follows.
Total income is $36,000.
Subpart (c):
Calculate wage rate and income.
Subpart (c):

Explanation of Solution
New daily wage can be derived as follows.
Wage is
Rearrange the wage equation in terms of labor
Labor demand is
Wage level with 200 labors can be calculated as follows.
Wage is 320.
Profit can be calculated as follows.
Total profit for each firm is 400.
Total income can be calculated as follows.
Total income is $36,000.
Subpart (d):
Calculate profit and income.
Subpart (d):

Explanation of Solution
Market demand function after the destruction can be derived as follows.
Labor demand is
Wage level with 200 labors can be calculated as follows.
Wage is 120.
Number of labor demanded by each firm can be calculated as follows.
Each firm employs 20 labors.
Profit can be calculated as follows.
Total profit for each firm is 800.
Total income can be calculated as follows.
Total income is $32,000. The total income decreased.
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Chapter 18 Solutions
Study Guide for Mankiw's Principles of Microeconomics, 7th
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