Q. If a firm faces a shortage of workers with very specific skills, it may decide to undertake the necessary training itself. If on the other hand, i faces a shortage of unskilled workers it may well offer a small wage increase in order to obtain the extra labor. In the first case it is responding to an increase in demand for labor by attempting to shift the supply curve. In the second case it is merely allowing a movement along the supply curve.
a. Use demand and supply diagram to illustrate each case, and explain each of your diagrams.
Given that elastically of supply is different in each case, do you think that these are the best policies for the firm to follow and give reasons for your answer?
b. What would happen to wages and economic rent if it used the second policy in the first case?
c. Outline any two reasons, why the marginal revenue product differs between workers in different jobs.