of labor market taxes, the marginal cost of a worker is given only by hisg'her wage. Thus, we have that rms choice of employment are characterized by: ilforginol Revenue = llrforg'iml Cost opyA 1 Ld L'l = 'w Question 2 Labor l'vlarket Equilibrium a] 1ill-Tritc down the log labor demand equation. b) Find the value of wage to" and employment L\" that characterizes the equilibrium. c} Assume that or,] = 1 and 0,1 = 2. How much does employment grows when A increases by 10%? d} Is the number you obtained in part to} identical. to the elasticity of labor demand with respect to A? Which one is larger? Why? e) The international price of the good that is produced in this labor mar ket. increases from 5 to 9 dollars. Find the change in wages and employment associated with the increase in p1,. {llint: That is an 40% increase in p\"). [)1 Draw a graph of the log labor supply equation and the log labor demand equation. h) Draw the graph of the log excess of demand equation {log Ldlog 15,). Make sure you label the axis, the magnitude of the slope, you identify the height of the intercept, and the exact point that it. reaches zero. i} Now. add to the graph the excess of demand equation associated with and increase in pg, of 30%. How much does the height of the intercept changes? How much does the point in which it reaches zero move? Question 3 Labor Taxes The government decides to introduce labor taxes. Assume that D's = 0.5 and ad = 2. 3) Assume that the taxe is paid by the rms, not the employees. Does the labor supply schedule shift once the policy is introduced? if so, by how much? 1)) Continue assuming that the tax is paid by the rms. Does the labor demand schedule shift once the policy is introduced? if so, by how much? c) How does the tax affect equilibium wages in this labor market? d) Does the tax changes employment levels? By how much? ( Assignment 3 ...t Equilibriumpdf Labor Economics Labor Market Equilibrium Consider the model of labor market Equilibrium discussed in class. ASI- sumc that jobs have all the same 8 hoursday shift, so labor supply choices happen only at the extensive margin. That is. workers only need to decide whether to work or not. Also mesunie that the product produced in this ls.- bor maria-3t is priced at the international rnurlnets which makes the. deimmd for the nal good innitely elastic _ 'l'hus, changes in the labor market will not affect the price of the good being produced. The number of workers willing to supply labor evolves according to the following labor supply fmiotion: LR . it; Where L, is the mew-lure of workers willing to supply labor, to is the wage rate. and as is the labor supply elasticity. In the other side of the market, firms face the following production tech- nology: y ALE, where A measures the productivity, Lg is the number of workers the rm is employing, and y is the total number of units of output that is produced. Firms maximize profits. which are the difference between revenues and costs: Prot = Revenues Costs H = my - \"51rd.- where II is the prot, to is the wage rate, and up is the price of the product produced in this labor market. This technology' of production implies that marginal revenues are given by: (rpgf-i Ljf" Marginal Revenue = Firms hiring decisions are characterized by the following rule'. Continue to increase hiring up to the point that the increase [marginal] in revenue brought by a worker is just high enough to cover hisfher costs. In the absence