Asked by Feisty Mochi on May 02, 2024
Verified
The following expressions describe a perfectly competitive labor market. The labor supply curve is:
SL = AE = $3.00 + $0.000375L.
The marginal revenue product of labor curve is:
MRPL = $13.00 - 0.000433L.
a. Find the equilibrium wage in this labor market. Also, find the optimal number of labor hours worked per week. Let L represent the number of labor hours worked per week, and let W represent the hourly wage of workers.
b. Determine the economic rent earned by labor in this situation.
Economic Rent
The excess payment made to a factor of production over what is necessary to keep it in its current use, reflecting payment beyond its opportunity cost.
Equilibrium Wage
The wage rate at which the quantity of labor supplied equals the quantity of labor demanded in the market.
Perfectly Competitive
A market structure characterized by a large number of small firms, homogeneous products, and free entry and exit, leading to price taking behavior.
- Analyze the balance of wages and employment in labor markets with competitive and monopsonistic dynamics.
- Ascertain the overall demand and assess the market's wage levels under certain labor market conditions.
Verified Answer
ZK
Zybrea KnightMay 07, 2024
Final Answer :
a.The equilibrium wage and number of labor hours worked per week are determined at the intersection of the supply and demand for labor curves. These curves are represented by AE and MRP. Equate these two curves to get L first.
3.00 + 0.000375L = 13 - 0.000433L
L = 12,376.24
Insert L into the MRP curve to get equilibrium wage rate.W = MPL = 13.00 - 0.000433(12,376.24)
W = $7.64
b.The economic rent is the area of the triangle between W ($7.64) and AE bounded by
and 
The area is (1/2)(base)(height)
b = 12,376.24 - 0 = 12,376.24
h' = 7.64 - 3 = 4.64
economic rent = (1/2)(12,376.24)(4.64) = $28,712.88
3.00 + 0.000375L = 13 - 0.000433L
L = 12,376.24
Insert L into the MRP curve to get equilibrium wage rate.W = MPL = 13.00 - 0.000433(12,376.24)
W = $7.64
b.The economic rent is the area of the triangle between W ($7.64) and AE bounded by
and The area is (1/2)(base)(height)b = 12,376.24 - 0 = 12,376.24
h' = 7.64 - 3 = 4.64
economic rent = (1/2)(12,376.24)(4.64) = $28,712.88
Learning Objectives
- Analyze the balance of wages and employment in labor markets with competitive and monopsonistic dynamics.
- Ascertain the overall demand and assess the market's wage levels under certain labor market conditions.