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Chapter 14: Q8. (page 571)

The demand for labor by an industry is given by the curve L = 1200 - 10w, where L is the labor demanded per day and w is the wage rate. The supply curve is given by L = 20w. What is the equilibrium wage rate and quantity of labor hired? What is the economic rent earned by workers?

Short Answer

Expert verified

The equilibrium wage rate will be $40, and the quantity of labor hired will be 800 laborers. The economic rent will be $16,000.

Step by step solution

01

Explanation

The equilibrium wage and quantity of labor hired are calculated below:

Given,LD= 1,200 - 10wLS= 20wEquilibrium :LD=LS1,200 - 10w = 20w30w = 1,200w = $ 40Thus, L = 1,200 - 1040= 1,200 - 400= 800

The wage rate will be $40, and 800 laborers will be hired.

The economic rent is calculated below:

The economic rent is the labor surplus, the area above the minimum level needed by the laborers to work.

EconomicRent=0.5×$40×800=$16000

The economic rent will be $16,000.

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Most popular questions from this chapter

Suppose that a firm’s production function is given by Q = 12L – L2, for L = 0 to 6, where L is labor input per day and Q is output per day. Derive and draw the firm’s demand for labor curve if the firm’s output sells for \(10 in a competitive market. How many workers will the firm hire when the wage rate is \)30 per day? $60 per day? (Hint: The marginal product of labor is 12 - 2L.)

Question: Using your knowledge of marginal revenue product, explain the following:

  1. A famous tennis star is paid \(200,000 for appearing in a 30-second television commercial. The actor who plays his doubles partner is paid \)500.

  2. The president of an ailing savings and loan is paid not to stay in his job for the last two years of his contract.

  3. A jumbo jet carrying 400 passengers is priced higher than a 250-passenger model even though both aircraft cost the same to manufacture.

Using the same information as in Exercise 8, suppose now that the only labor available is controlled by a monopolistic labor union that wishes to maximize the rent earned by union members. What will be the quantity of labor employed and the wage rate? How does your answer compare with your answer to Exercise 8? Discuss. (Hint: The union’s marginal revenue curve is given by MR = 120 - 0.2L.)

Question: The only legal employer of military soldiers in the United States is the federal government. If the government uses its knowledge of its monopsonistic position, what criteria will it employ when determining how many soldiers to recruit? What happens if a mandatory draft is implemented?

Using your knowledge of marginal revenue product, explain the following:

  1. A famous tennis star is paid \(200,000 for appearing in a 30-second television commercial. The actor who plays his doubles partner is paid \)500.

  2. The president of an ailing savings and loan is paid not to stay in his job for the last two years of his contract.

  3. A jumbo jet carrying 400 passengers is priced higher than a 250-passenger model even though both aircraft cost the same to manufacture.
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