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In: Economics

Assume that the minimum wage has just been increased by 25%. Explain briefly why each of...

Assume that the minimum wage has just been increased by 25%. Explain briefly why each of the following statements is true, false, or uncertain from an economic perspective.

A. If a company cannot increase the prices of the products it sells, it will absorb the wage increase (and continue operating & employing workers at the higher wage) as long as it can still earn positive economic profits after doing so. Please explain.

B. If a company cannot increase the prices of the products it sells, it will absorb the wage increase (and continue operating) as long as it can still earn positive accounting profits after doing so. Please explain.

C. Once this new law is in effect, some firms might find it advantageous to replace workers with machines. Please explain.

D. We should be able to quantify the negative effects (if any) of this law on unemployment quickly, probably within the first two to three months. Please explain.

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Expert Solution

Rahul Sunny answered 2 years ago
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