1. optimization problem.

a) What does the X-axis represent on the graph of the BRF?

b) What does the Y-axis represent?

c) What determines the reservation wage, where the BRF intercepts the X-axis?

d) What does the shape of the BRF represent? What shape does the BRF typically take?

e) What does it mean that the slope of the BRF represents the Marginal Rate of Transformation (MRT) for the firm?

2. In constrained optimization problems, the set of indifference curves represents what is being optimized. In the labor discipline model, the firm wants to choose the lowest feasible wage to minimize costs

a) On the labor-discipline model, why are the firm's indifference curves represented as isocost curves? Does the firm want to be on the highest or lowest feasible isocost curve? Why?

b) How does the slope of the firm's isocost curve represent the Marginal Rate of Substitution (MRS)?

3. Determining the firm's wage offer.

a) Why is the profit-maximizing wage that the firm sets the wage where the MRS = MRT?

b) Why can't the firm do better by offering a lower wage?

4. The wage-setting curve.

a) What does the X-axis represent in the model of the labor market?

b) What does the Y-axis represent?

c) What does the wage-setting curve represent?

d) Give an example of something that would shift the wage-setting curve down - that is, what would cause the real wage that firms offer to be lower at every level of employment? Explain.

e) Why does the wage-setting curve become steep and nearly vertical as the level of employment nears the total number of potential workers?

5. The Price-setting curve.

a) What does the price-setting curve represent? What determines its height?

b. What does it mean that the price-setting curve is too high? What market forces would tend to move it back down to the equilibrium?

6. Labor market equilibrium.

a) Suppose that the labor market is in equilibrium with real wage = $20 and employment at 80 million. If the level of competition in the industry increases, what do you expect to happen to the real wage and level of employment

b) Suppose that the labor market is in equilibrium with real wage = $20 and employment at 80 million. Now, suppose 2 million workers enter the labor market. What do you expect to happen to the real wage and level of employment in the long run? Explain.

7. The impacts of technological Innovation on wages, employment, and inequality.

a) What are the short-run impact of technological innovation (such as ATM machines, or more automated accounting software) on employment levels, the real wage, and inequality? Explain.

b) What is the long-run impact of technological innovation (such as ATM machines, or more automated accounting software) on employment levels and the real wage? Explain.