Question

In: Economics

(2) A region has an automobile manufacturing industry that employs labor from the local labor market....

(2) A region has an automobile manufacturing industry that employs labor from the local labor market. The demand for labor is represented by the following equation:

D(L)=100-5W

And the supply of labor by the equation:

S(L)=25

Where, W is the wage rate, D(L) is the demand for labor and S(L) is the supply of labor.

   a. Find the equilibrium wage rate paid workers by the automobile industry.

   b. Find the equilibrium amount of labor demanded by the automobile industry.

c. Draw a supply and demand diagram to illustrate the labor market.

Solutions

Expert Solution

(a) At equilibrium : Demand for labor equals supply.

100- 5W =25

5W = 75

W = 15 (Equilibrium wage rate paid)

(b) Equilibrium amount of labor demanded by the automobile industry = 25 workers.

(c) D= 100-5W

When W=0 , D= 100

When D=0 , W= 20

And supply curve is vertical at 25 .

By plotting these we get the demand and supply of labor as shown below:

Rahul Sunny answered 2 years ago
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