Question
The Delicious Jam Factory is the only employer in a small remote town. The company sells jam at a price of P=1 per unit. The
The Delicious Jam Factory is the only employer in a small remote town. The company sells jam at a price of P=1 per unit. The marginal product of labour at the jam factory is MPN=100-0.39N, where N is the number of workers hired. Workers in the town supply their labour according to the following labour supply function: NS=0.83W-15, where W is the wage per worker. a) If the Delicious Jam Factory acted as a competitive firm in the labour market, what would be the wage in the small remote town? b) How much would total employment be in that case? c) How much will total employment in the remote town actually be, given that the Delicious Jam Factory is the only employer in the town and therefore will not act as a competitive firm in the labour market? [Hint: If the total cost function is aN+bN2, then the marginal costs are a+2bN.] d) How much will the wage be in the small remote town, given that the Delicious Jam Factory is the only employer in town? e)Illustrate your answers to all of the previous questions in a single graph. f) Explain, intuitively, why the labour market outcomes in this town with a single employer are different from the outcomes that would arise if there were many firms competing for labour.
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