1. (16 points) a. When unemployment exists in the supply and demand labor market model, there is an adjustment that brings the model back into equilibriumbackto full employment.Orthodox economists cite two mechanisms that cause thisadjustment.Explain each.

b. In the orthodox supply and demand labor market model, it is assumed that workersdo not learn skillson the job.How would removing this assumption from their model (and now assuming that workers do learn skills on the job), affect how firms are supposed to act when unemployment exists?Will the labor market still clear? Explain in detail.

1. (10 points) Pizza Bob is Salem's only purveyor of authentic Montana style pizza. Below is the demand and total cost schedules facing Pizza Bob.

Price/pizzaPizzas Sold/dayPizzas Sold/dayTotal Cost/day

$122020$210

113030270

104040310

95050360

86060420

77070490

68080570

Bob correctly notes that to maximize his profits, he should produce where marginal cost equals marginal revenue.How many pizzas should Pizza Bob make?What price should he charge?