8) Suppose the economy initially consist of a bunch of monopoly firms earning high profits so that the real profit rate is above the minimum level required for the firms to remain in business, i.e. > . In order for these conditions to persist there must be something ("barriers to entry") preventing new firms from entering the economy.

a) Draw the labor market graph and the real profit rate graph indicate the initial equilibrium described in the above paragraph.

b) How suppose legislation is passed by government (such as the Sherman Anti-Trust Act of 1890) that removes barriers to entry by new firms. Show what happens in the labor market and real profit rate graphs. Explain fully what happens to employment, unemployment, real wages, the profit rate and the number of firms as the economy makes the transition to the new equilibrium.