What happens to quantity of labor he demands-wage increases

Assignment Help Business Economics

Reference no: EM13839408

Suppose that Taher's pizza business operates under competitive conditions and that his short-run production function is q=20^E .

a) How much labor does he employ if the price of each pizza is p = $12 and the hourly wage is w0 = $6? [Hint: In this case, it can be shown that the marginal product of labor is MPE = 10/ square root E]

b) What happens to the quantity of labor he demands if the wage increases to w1 = $12?

c) Once again assume w = $6 but suppose the government imposes a tax of 25% on each dollar he pays his workers, to cover their health insurance costs (called a payroll tax). Ceteris paribus, what happens to his employment level?

d) Suppose the conditions set out in (a) hold. All else equal, what happens if the government imposes a 25% tax on his profits?

e) What do you conclude from your answers to (c) and (d)?

Reference no: EM13839408

Questions Cloud

Efforts to develop a strategic advantage : Should innovation activities be linked to our efforts to develop a strategic advantage or should innovation efforts be experimental with an objective of finding products or services that may be profitable at some indefinite point?

Revolution like the industrial revolution : Base states that it is not just technology that changes so quickly, but also the impacts which they have upon society. Do you agree? How does that align with the assertion in the lecture that we are now living in a third great technological transform..

Determine the equilibrium price-quantity per firm : Each of the 10 firms in a competitive market has a cost function of c=25+q^2. The market demand function is q=120-p. Determine the equilibrium price, quantity per firm and market quantity.

What condition required the change in methodology : This discussion will require some thought. Reread the section on Nash Equilibrium. In all of the market structures except oligopoly, firms identified the level of output at which MR = MC, produced that level of output, and charged a price dictated by..

What happens to quantity of labor he demands-wage increases : Suppose that Taher's pizza business operates under competitive conditions and that his short-run production function is q=20^E. What happens to the quantity of labor he demands if the wage increases to w1 = $12?

Real interest rate is equal to marginal product of capital : Assume that b=1 and that initially the real interest rate is equal to the marginal product of capital at 4%. As well, assume that v=1/2 and that the inflation rate last period was 2%. If the housing bubble busting causes the share of output of invest..

Explain the events using supply and demand : Explain the events below using supply and demand. At a restaurant that does not take reservations, people arriving at 7:30 normally have to wait for an hour, but some people arriving at that time give money to the hostess and are promptly seated.

What is the net present worth of investment : The new extruder will increase the company's annual income by $90,000. Maintenance and operating costs are expected to be $4,000 during the first year and to increase by $1,200 each year. XYZ uses a before-tax MARR of 12% for its preliminary economic..

What impact would this have on the market for box of granola : In December 1992, the government began requiring that food contain labels with nutritional information. The information had to be verified by independent laboratories. The price of verification was $20,000 per food item. What impact would this have o..

User Account

All Pages