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

Monopoly help, Monopoly and Oligopoly help?!? 1. Your firm sells a perfume....

Monopoly and Oligopoly help?!? 1. Your firm sells a perfume. The daily demand for your perfume estimated by your economists is given by P=150-5Q Your marginal cost is constant at $

Explain the term fordism, Explain the term Fordism Between approximatel...

Explain the term Fordism Between approximately 1890 and 1930-or perhaps 1890 and 1950-a host of innovative technologies and business practices were adopted in the US. Europeans

What is my expected benefit?, I am risk averse, and trying to maximize my e...

I am risk averse, and trying to maximize my expected value of c0, 5, where c is my fortune. I have 50.000 in cash, and also art with a value of 200.000 which I keep in my basement.

Future worth, I need help finding the future worth given the initial invest...

I need help finding the future worth given the initial investment, MARR, and profit over a period of time.

Linear demand curves, Below are three questions. WRITE A BRIEF NOTE OF EXPL...

Below are three questions. WRITE A BRIEF NOTE OF EXPLANATION IN ANSWER TO EACH PART OF EACH QUESTION. The marks awarded will depend on the quality of the reasoning exhibited and th

Revenue and profit maximization, Revenue and Profit Maximization: When...

Revenue and Profit Maximization: Whenever a good is produced, the individual firm which has produced incurs costs which are are referred to as private costs and the society in

Sources of monopoly power, Sources of monopoly power: The main sources...

Sources of monopoly power: The main sources of monopoly power include the following: (i) Control of the entire supply of a basic input . It only one firm has access to or co

Welfare economics, what do you mean by social welfare function

what do you mean by social welfare function

Long run average cost (lac), Long Run Average Cost (or LAC) -Constant R...

Long Run Average Cost (or LAC) -Constant Returns to Scale If the input is doubled, the output will double and average cost is constant at all the levels of output.

Solution.., i want to know that ,wheather lithium iodide can be used as red...

i want to know that ,wheather lithium iodide can be used as redox electrolyte? and acetonitrile canbe used as redox electrolyte? ehich is more efficient?n..

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