Directions: For all three questions below, draw side-by-side graphs of a perfectly competitive labor market and show what would occur in that market as a result of the information provided in each prompt.

1. In the space below or on a separate document, please draw a correctly labeled side-by-side graph of a perfectly competitive labor market. Be sure to show the equilibrium quantity of labor and the equilibrium wage that occurs in the market for labor, along with the profit-maximizing number of laborers and the wage that a typical firm would pay its laborers.

2. Assume in the graph above that the firm produces oranges. If the demand for oranges increases, what will happen to the profit-maximizing number of laborers that a typical firm would hire? What would happen to the wage rate that a firm would pay its employees? Illustrate in your graph above the changes (if any) that would occur in response to an increase in the demand for oranges, and explain why these changes would occur.

3. Now assume that instead of an increase in demand for oranges, a minimum wage is imposed that affects all workers. Show the effect that this minimum wage would have on the profit-maximizing number of laborers that a typical firm would hire, along with the wage rate that a firm would pay to its employees.