Problem
1. A firm's technology is such that it must combine 5 person-hours of labor with 3 machine-hours to produce one unit of output. The firm has 15 machines in place and the wage rate rises from $10 per hour to $20 per hour. What is the short-run elasticity of this firm's labor demand?
2. Suppose that the supply curve of labor in a competitive industry is given by Es = 10 + w; and the demand curve for labor is given by ED = 40 - 4w. What is the equilibrium wage and employment? What is the unemployment rate? Suppose now that the government sets a minimum wage of $8. How many workers would lose their jobs? How many additional workers would want a job at the minimum wage? What is the unemployment rate?