Assume the fast food industry is competitive and has the following production function: to produce 100 meals in an hour, each firm needs 10 workers (no more or no less), $100 of other variable inputs such as food and electricity, and $100 of fixed cost (including the amortized cost of the structure and equipment). Workers cost $10 an hour.

a. In the long run, what will a meal sell for? (First solve for what 100 meals cost, then divide by 100.)

b. Suppose a minimum wage hike increases wages to $15 an hour. In the short run, will the firm go out of business? What will happen to its output? What will happen to the price of a meal?

c. In the long run, will any firms go out of business? What will happen to the price of a meal? If you know that consumers will buy 2,000 fewer meals per hour at this higher price, what will happen to employment in the fast food industry?

d. If you investigated the effects of minimum wage on employment in this industry, would you expect the main effects to take place right away?