How it can be possible for increases in the minimum wage, Microeconomics

Assignment Help:

The minimum wage was increased in 1996 amid cries by various economists that it would cause unemployment. Critics shown that the last time the minimum wage went up the similar dire predictions from economists were made, but more people were employed after the minimum wage increase. The similar, they argued, would occur again. Using isoquant-isocost analysis, analyze this situation and illustrate how it can be possible for increases in the minimum wage to have little impact on employment levels.

ANSWER:  The confusion arises over what the minimum wage increase could do in the short run versus  the long run. In the short run, capital is assumed to be fixed. As a result, the firm probably could continue to employ the same number of individuals as before the wage increase until the relatively cheaper capital would be obtained to substitute for the relatively more expensive labor. In the interim, if the demand for the  roduct increased, the firm might find it profitable to expand output and therefore hire more capital and more labor. In the isoquant-isocost graph below, the firm is initially at point A. If the price of labor increases, the budget line pivots in to line BB´. To maintain production at the similar level as before, the firm must increase its budget allocation to allow it to return to point A. This is the optimum position in the results and short run in no decrease in the employment level. Thus, in the long run the firm will move toward point C as capital becomes available. If demand increases warrant a move to isoquant II, then it is seems that more labor  and more capital will be employed even though the price of labor increases.

2392_How it can be possible for increases in the minimum wage.png


Related Discussions:- How it can be possible for increases in the minimum wage

Total Product, Why total product continues to increase despite a decrease i...

Why total product continues to increase despite a decrease in the marginal product?

Profit maximizing quanitity, how do I determine the profit-maximizing quant...

how do I determine the profit-maximizing quantity of a firm for different market prices when only given TFC, TVC, and the market price

What is the adam smith view of invisible hand, What is the Adam smith view ...

What is the Adam smith view of "invisible Hand"?  Invisible hand is an unknown power which is working for the interest of total economy. In any economy, everybody cares for his

Economic growth and economic development, Economic growth and Economic deve...

Economic growth and Economic development: Economic Growth refers to an increase in real aggregate output (real GDP) reflected in increased real per capita income.A country is

How a country exchange rate influence balance of payment, How might a count...

How might a country exchange rate influence the balance of payments? Definition of the exchange rate; price of domestic currency in another (basket of) currency (currencies). C

Working capital, Working Capital: A business requires a certain revolving f...

Working Capital: A business requires a certain revolving fund of finance to pay for regular purchases of initial labour, raw materials and other inputs to production. Working capit

Microeconomics, . Suppose fixed costs increase by $20. How will this affe...

. Suppose fixed costs increase by $20. How will this affect TFC, TVC, TC, ATC, AVC and MC? Which numbers change and which stay the same?

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd