13.5 Suppose the government wishes to increase the equilibrium wage to €4 per hour by offering a subsidy to employers for each person hired. How much will this subsidy have to be? What will the new equilibrium level of employment be? How much total subsidy will be paid?

Suppose instead that the government declared a minimum wage of €4 per hour. How much labour would be demanded at this price? How much unemployment would there be?

Graph your results.

A monopsony in the garment district faces a supply curve for workers given by l = 80w, where l is the number of workers hired and w is their hourly wage. Assume also that the firm’s labour demand

(marginal revenue product) curve is given by l = 400 − 40MRPl

.

a.

b.

c.