Problem: Explain how each of the following events affects the equilibrium wage and the equilibrium quantity of labor (assume all else is constant with each event). Be sure to explain whether demand for or supply of labor has changed.
(1) The price of output a firm produces rises.
(2) A leisure-hour provides greater marginal benefit.
(3) The marginal tax rate rises.
(4) New immigration laws restrict the hiring of illegal workers.
(5) A reduction in welfare benefits.
(6) The cost of machines falls (labor and machines are substitutes).
(7) Technology makes labor more productive.
(8) The industry becomes more monopolistic.
(9) The price of the product a firm produced falls.
Mangy Mutt Modifiers (3M) grooms dogs. 3M has a fixed capital stock, and uses only one variable input, labor. Additionally, 3M sells its output and buys its labor under competitive market conditions. Using the information provided, answer the questions that follow.
|
UNITS OF
|
TOTAL DOGS
|
MARGINAL PHYSICAL
|
MARGINAL REVENUE
|
|
LABOR
|
GROOMED
|
PRODUCT OF LABOR
|
PRODUCT OF LABOR
|
|
0
|
0
|
|
|
|
1
|
15
|
15
|
22.50
|
|
2
|
43
|
28
|
42.00
|
|
3
|
75
|
32
|
48.00
|
|
4
|
105
|
30
|
45.00
|
|
5
|
130
|
25
|
37.50
|
|
6
|
150
|
20
|
30.00
|
|
7
|
164
|
14
|
21.00
|
|
8
|
174
|
10
|
15.00
|
|
9
|
182
|
8
|
12.00
|
|
10
|
188
|
6
|
9.00
|
|
11
|
192
|
4
|
6.00
|
(a) If the competitive wage rate is $15.00 per unit of labor, how many units of labor will 3M hire? Briefly explain your answer.
(b) Calculate 3M's gross profit at that combination of wages and labor. Assume that there are zero capital costs, so gross profits equal total revenue less labor costs. Show your calculation.