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Problem Set 6

# Problem Set 6 - Labor Market Equilibrium Frictions in the...

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Labor Market Equilibrium Frictions in the Labor Market - I March 25, 2010 1. Suppose that the labor market supply curve is upward sloping and the labor demand curve is downward sloping. The study of economic trends over a particular time period reveals that wage recently fell while employment levels rose. Which curve must have shifted and in which direction to produce this effect? 2. Suppose that a firm’s labor supply curve is E = 5 w ; where w is the hourly wage rate. (a) Solve for the hourly wage that must be paid to attract a given number of workers ( E ) to the firm. (b) Express the total hourly labor cost associated with any given level of employment. (c) Express the marginal cost of labor when hiring an additional worker. 3. A firm faces a perfectly elastic demand curve for its product at a price of \$6 per unit of output. The firm faces an upward sloping supply curve of E = 20 w - 120; where E is the number of workers hired each hour and w is the hourly wage rate. Each hour of labor produces five units of output.

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