Question

Question 1. Suppose that the demand for candy increases. How would this affect the labor market in the candy industry?

		The marginal resource cost (MRC) would increase because workers would demand higher wages.
		The marginal revenue product (MRP) of labor would decrease because the companies want each worker to produce more candy.
		The marginal revenue product (MRP) of labor would increase because the companies are making more money per worker.
		The marginal resource cost (MRC) would decrease because companies see that they are making more money per worker.

Question 2: An Exclusive Union (Craft Union) might use which of the following to increase the wage rate?

		Try to organize all workers regardless of skill and occupation
		Decrease the amount of training required to practice in the market
		Use licensing to restrict the size of the labor supply
		Lobby for legislation that would increase the labor supply

Answer 1

Q1) The marginal resource cost (MRC) is the additional cost of an extra unit of resouce i.e. worker. The MRC is equal to the wage set by the market.

MRC is the change in total costs by change in inputs(workers).

MRP is the Marginal Revenue Product and is the additional revenue which is generated by an extra unit of worker. It can be defined as dividing the change in total revenue by change in inputs.

MRP is equal to the market price.

So, if demand for a product, in this case, candy increases, demand is equal to MRP and both are downward sloping as each additional worker is less productive and is worth lesser as compared to previous worker.The increase in demand for candy will increase the demand for labour.

So, if demand for candy increases, the price of candy increases, the MRP increases, causes the demand curve to shift right, and the intersection of supply and demand gives the wage, so the wages are increased. This leads to the increase in MRC.

So, the correct answer is option 1. The MRC would increase because the the workers would demand higher wages.

Q2) Craft unions compel firms to hire more labour by increasng the wage rate, and they do so by restricting the supply of labour. By restricting supply, and as demand is more than supply, the wages are automatically pushed up. Craft unions only organize the workers who have a particular skill. Reducing the amount of training will reduce the wages in long run as skills will be lesser. Increasing the labour supply will lead to a downward shift of the wages. So, the correct answer is option 3.