Ask Question
27 March, 04:36

Suppose the marginal product of labor in the economy is given by MPN = 0.002 (16,000 - N), while the supply of labor is 1000 + 1000w. (a) Find the market-clearing real wage rate and level of employment. (b) What happens to the wage rate and employment if wealth rises, reducing the supply of labor to 500 + 1000w? (c) What happens to the wage rate and employment if after wealth has risen as in part (b), there is a productivity shock that increases the marginal product of labor to MPN = 0.0025 (16,000 - N) ?

+2
Answers (1)
  1. 27 March, 08:12
    0
    A = 11,000; B = 10,833 C = 11,571

    Explanation:

    a. The market-clearing wage rate equates the demand and supply of labour

    Solve for w first

    Therefore setting w = MPN = 0.002 (1600 - N)

    w = 32 - 0.002 (1000 + 1000w)

    w=32 - 2 - 2w

    Solve using algebra

    3w=30

    w=10

    Now put in the value for w into the supply of labour equation

    1000 + 1000w

    N = 1000 + (1000 * 10)

    N=11000

    (b)

    Setting w=MPN=0.002 (16000-N)

    w=32-0.002 (500+1000w)

    w=32-1-2w

    Solve using algebra

    3w=31

    w=10.333

    Substitute 10.333 for w in labour supply equation 500 + 1000w

    N=500 + (1000*10.333)

    N=10.833

    (C)

    Set w=MPN = 0.0025 (16,000 - N)

    w = 40 - 0.0025 (500 + 1000w)

    w=40-1.25-2.5w

    Solve with algebra

    3.5w = 38.75

    w=11.071

    Substitute 11.071 for w in labour supply equation N=500 + 1000w

    N=500 + (1000 * 11.071)

    N = 11,571
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Suppose the marginal product of labor in the economy is given by MPN = 0.002 (16,000 - N), while the supply of labor is 1000 + 1000w. (a) ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers