Microeconomics

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

1. Draw side-by-side graphs for the whole labor market and for Operum. Label the market supply S_L, the market demand D_L, the equilibrium wage W_E, the equilibrium quantity Q_E, the wage paid by Operum W_O, and the quantity hired by Operum Q_O.

1. Is W_E greater than, equal to, or less than the marginal factor cost of unskilled labor at Q_O? Explain.

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

1. 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

Quantity demanded for labor will decrease for Operum with the minimum wage because - - - the minimum wage sets the price above equilibrium.

• As the wages increase, the cost of employing labor also increases, which is the reason for the decline

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

Marginal revenue product will remain the same?

1. If the minimum wage is $15 per hour and Q_Min is 6 workers, what will Operum's total resource cost for labor be per hour?

156=$90/hr?

1. What would happen to Operum's demand for unskilled labor if the demand for the product it makes increases?

It would rise. If demand for products rises, demand for labor also rises. More labor is employed to produce more units to satisfy the higher demand for goods. So higher demand for products implies higher demand for labor.