The wage for workers in a competitive market is initially $10 and rent, the cost of...

The wage for workers in a competitive market is initially $10 and rent, the cost of capital (also rented in a competitive market), is initially $5. Now suppose that wages decrease to $8 and rent decreases to $2.

a) Describe how the scale effect changes a firm's use of labor and capital.

b) Describe how the substitution effect changes a firm's use of labor and capital.

c) Overall will a firm hire more or fewer workers? Will a firm rent more or less capital?

d) Will a firm change its production technology given the changes in w and r?

Expert Solution

a. This directly affects product costs when the costs of both input variables rise. i.e. in the same proprotation to the manufacturer the price of the commodity will be increased. Labor avialiability will rise on the market, and the availability of capital will also increase. In the best combination of these two inputs, however, the use of both factors will be reduced by the business in the hope of reducing total costs.

b. The proportion of labor will increase as much as the proportion of capital if both are complete substitutes. In other words, more labour is used by capital replacement and the overall cost of the product can be minimized.

c. More and less capital go to a company. The higher labor cost is higher than the higher labor cost and they are perfect supplements.

d. Indeed, this business is now transforming into a service company where most of the works are only performed with men

Rahul Sunny answered 2 hours ago

You own a business in a highly competitive wage market and your workers are not unionized....

You own a business in a highly competitive wage market and your workers are not unionized. You are negotiating a new wage contract. What factors must you consider to get a fair contract?

Firms in a competitive market will employ workers up until: Select one: a. The real wage...

Firms in a competitive market will employ workers up until: Select one: a. The real wage equals the firm’s marginal cost b. The real wage equals workers’ willingness to supply c. The real wage equals workers’ marginal product d. The real wage equals the price of the good sold

A. Minimum Wage in a Single Competitive Labor Market In a single competitive labor market, the...

A. Minimum Wage in a Single Competitive Labor Market In a single competitive labor market, the labor demand and labor supply curves are LD = 200 − 20w LS = 50 + 10w where we measure labor in terms of workers per hour, and the hourly wage is measured in dollars per worker. (a) Solve each equation for the wage w, and plot the resulting inverse labor demand and labor supply curves. Identify the market-clearing equilibrium. (b) The government imposes...

Initially, the market price is pequals19, and the competitive firm's average variable cost is 18, while...

Initially, the market price is pequals19, and the competitive firm's average variable cost is 18, while its average cost is 21. Should it shut down? Why? This firm should A. shut down because average cost is greater than the market price. B. not shut down because average fixed cost is less than the market price. C. shut down because average fixed cost is less than the market price. D. not shut down because average variable cost is less than...

a) Initially, the market price was p=20, and the competitive firm’s minimum average variable cost was...

a) Initially, the market price was p=20, and the competitive firm’s minimum average variable cost was 18, while its minimum average cost was 21. Should it shut down? Why? Now this firm’s average variable cost increases by 3 at every quantity, while other firms in the market are unaffected. What happens to its average cost? Should this firm shut down? Why? b) Suppose that the demand curve for wheat is Q=100−10p and the supply curve is Q=10p. The government imposes...

The wage at which exactly the desired number of workers is employed is called the: market-wage...

The wage at which exactly the desired number of workers is employed is called the: market-wage price market-compensation price market-clearing price market-balance price

A perfectly competitive market is initially in long-run competitive equilibrium. Then, market demand falls. By the...

A perfectly competitive market is initially in long-run competitive equilibrium. Then, market demand falls. By the time all adjustments have been made, price will be __________ its original level if the industry is a(n) __________ costs industry. a. above; decreasing b. at; constant c. at; increasing d. below; increasing e. a and d

In the labor market the wage rate requested by workers will generally depend on workers’ expected...

In the labor market the wage rate requested by workers will generally depend on workers’ expected price Pe which is to prevail in the future, the current unemployment rate u, and a variable z that represents the unemployment benefits package. This defines the wage-setting relationship: W = PeF(u,z). At the same time, firms define the price-setting relationship: P = (1+m)W, where m is the markup of goods prices over wage rate. (1) Suppose we know the functional form F(u,z) =...

If the equilibrium wage is $9 in the market for hotel workers and $8 in the...

If the equilibrium wage is $9 in the market for hotel workers and $8 in the market for restaurant workers and both markets have similar elasticities of labor supply and demand, then a minimum wage of $10 in both markets will: a. cause more unemployment among restaurant workers than hotel workers. b. cause more unemployment among hotel workers than restaurant workers. c. cause the same amount of unemployment in both markets. d. have no effect in either market.

If the nominal wage of workers increases by 10% and the real wage of workers remains unchanged, then the overall price level must have:

If the nominal wage of workers increases by 10% and the real wage of workers remains unchanged, then the overall price level must have:a.decreased by less than 10%.b.increased by more than 10%.c.increased by 10%.d.decreased by 10%.

Question