Question

In: Economics

4. Draw a firm’s labour demand curve that intersects the vertical axis at $20 per hour,...

4. Draw a firm’s labour demand curve that intersects the vertical axis at $20 per hour, and choose a point on the curve corresponding to an hourly wage of $12 and employment of 50 workers.
a. Explain the significance of the labour demand curve, and show why such a curve is downward sloping.
b. At the employment level of 50 workers, what is the total amount the employer pays in wages?
c. At the employment level of 50 workers, what is the firm’s profit? (Hint: At each level of employment, the labour demand curve shows the additional value of production created by hiring an extra worker.)

Solutions

Expert Solution

Answer 4-

a. Labor demand curve is downward sloping because a rise in wages will lead to fall in output sold by the firm, so fall in demand for labor . Also, when wages rises firm will substitute the other inputs for labor.

b. Total amount paid by employer= Wages* Employment level= $12*50= $600

c. Firm's profit= (20-12)*50= 8*50= $400

Rahul Sunny answered 2 years ago
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