5.02

Operum is a firm that hires unskilled laborers in a perfectly competitive factor market.

(a) Draw side-by-side graphs for the whole labor market and for Operum. Label the market supply SL, the market demand DL, the equilibrium wage WE, the equilibrium quantity QE, the wage paid by Operum WO, and the quantity hired by Operum QO.

(b) Is WEgreater than, equal to, or less than the marginal factor cost of unskilled labor at QO? Explain.

(c) The government institutes an effective minimum wage for unskilled labor. Illustrate this on your graphs from part (a). Label the minimum wage WMin.On the graph for Operum, label the new quantity of unskilled labor employed QMin.

(d) Ceteris paribus, how will the minimum wage from part (c) affect the market's demand for unskilled labor and its quantity demanded for unskilled laborwill each increase, decrease, or stay the same? Explain.

(e) Will the minimum wage cause the marginal revenue product of Operum's last worker hired to increase, decrease, or stay the same?

(f) If the minimum wage is $15 per hour and QMinis 6 workers, what will Operum's total resource cost for labor be per hour?

(g) What would happen to Operum's demand for unskilled labor if the demand for the product it makes increases?