Calculate retailers elasticity of demand for minimum wage

Reference no: EM13213714

Micro Unit three Quiz 11

1. Explain why the labor demand curve slopes down from left to right. In other words, why does a business firm's labor demand curve have a negative slope?

2. Briefly explain the difference between the income and substitution effects in the labor market. Can you make up your own example of each?

3. Suppose Congress passes and the President signs a bill raising the federal minimum wage by $1.00 per hour from $7.25 to $8.25. As a result of this increase, a local retailer reduces its hiring of minimum wage employees by 10%. Calculate the retailer's elasticity of demand for minimum wage labor. Hint: first calculate the percentage increase in the wage rate. Then use the general formula for elasticity. If necessary, review the notes on elasticity that were attached to quiz 2 and that are posted on Blackboard under the Content link. Indicate whether your numerical result is elastic or inelastic.

4. Refer to the table on page 24-1 and assume that the price of Gadgets produced by Percomp Company rises to $15 each instead of $10 each. If the company can hire any number of employees it chooses at a wage of $120 per day, then how many employees will the firm hire? Hint: First set up another column for Total Revenue (i.e., total revenue product) at the price of $15. Then add a column for marginal revenue product (MRP). Note that the numbers in the new TRP and MRP columns will be higher than the original numbers because the price of the product rose from $10 to $15. Workers Gadget output MPP Total Revenue(PxQ) Marginal Rev Product 0 0 x $0 X 1 24 24 $240 $240 2 44 20 $440 $200 3 60 16 $600 $160 4 72 12 $720 $120 5 80 8 $800 $80 6 84 4 $840 $40

5. Can you provide your own example of a screening device you have observed in the commercial labor force? Provide a brief explanation.

Reference no: EM13213714

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