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Problem Two Suppose that a firm's production function is Q = H( 1r N where K is capital and N is units of labour in
Problem Two Suppose that a firm's production function is Q = \\H( 1r N where K is capital and N is units of labour in thousands. Currently, K = 1 and r = $5 per unit. The market labour supply is given by W = 4N5. Assume that the output is sold in a perfectly competitive market at a perunit price of $2. [Round up your answers to two decimals.) Assume that the firm's wage is determined in a perfectly competitive labour market. a) Write down the marginal product of labour and derive the short run labour demand. b) Calculate the equilibrium wage and employment levels. c) Suppose that the wage rate decreases. Without any calculation, briefly explain the role of substitution and scale effects in the firm's adjustment of labour. Now suppose that the firm is a monopsonist. Firm's marginal cost of labour is MC = 8N. d) Derive the equation for the value of the marginal product of labour. Calculate the resulting wage and employment levels. e} Calculate the size of the vacancy gap. f) Briefly compare possible effects of a minimum wage on employment in labour markets characterized by both perfect competition and monoposony. Using a relevant graph, cleanly and clearly illustrate that a minimum wage may have opposite outcomes in these two labour markets
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