Suppose the demand for fast food workers can be defined a labor demand equation of LD...

Suppose the demand for fast food workers can be defined a labor demand equation of LD = 95-3w. All fast food workers are covered by the minimum wage and it is binding. Will an increase in the minimum wage from $7.25 to $9.00 per hour increase, decrease, or have no effect on the aggregate earnings of fast food workers?

Expert Solution

If (w = 7.25),

LD = 95 – 3w

= 95 – 3 × 7.25

= 95 – 21.75

= 73.25

Aggregate earnings = LD × w = 73.25 × 7.25 = 531.06

If (w = 9),

LD = 95 – 3w

= 95 – 3 × 9

= 95 – 27

= 68

Aggregate earnings = LD × w = 68 × 9 = 612

At the increase in w the labor demand decreases; but aggregate earning increases from $531.06 to $612.

Answer: increase

Rahul Sunny answered 2 years ago

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