Question

Suppose a project needs to hire 50 electricians. At the initial wage of 60K/year (including benefits) 480 are currently employed in the local area and 20 are estimated to be unemployed. The MEBT is 0.2. After electricians are hired for the project, the local wage increases to 65K/year and the number employed locally increases to 510.
A)Estimate the opportunity cost of hiring the workers.

B)Draw a diagram to illustrate.

C)Explain any assumptions you mak

Answer 1

[A] Opportunity cost refers to the forgone cost.

here, opportunity cost = difference between return on most profitable investment choice and return on investment chosen to pursue.

OC= 65K-60K = 5K

[B] Graph shows the increase in labor supply.

[C] Here few assumptions are made:

• All labors must be homogeneous
• There is perfect competition in the market.
• Here is another assumption of full employment of resources.
• proportion of labors in production of goods is fixed.