QuestionJuly 19, 2025

Assume the marginal product of labor (MPL) is given by MPL=(A)/(2)sqrt ((K)/(L)) Where A is a parameter that captures technology. Assume that K=1000 and the labor supply in the economy is L^S=1000 Assume that A=1 for this question. Say that the government approves a legislation that mandates a minimum real wage of 1 With the new legislation , the number of unemployed workers in the economy is 250 750 500 1000 None of the other answers.

Assume the marginal product of labor (MPL) is given by MPL=(A)/(2)sqrt ((K)/(L)) Where A is a parameter that captures technology. Assume that K=1000 and the labor supply in the economy is L^S=1000 Assume that A=1 for this question. Say that the government approves a legislation that mandates a minimum real wage of 1 With the new legislation , the number of unemployed workers in the economy is 250 750 500 1000 None of the other answers.
Assume the marginal product of labor (MPL) is given by
MPL=(A)/(2)sqrt ((K)/(L))
Where A is a parameter that captures technology.
Assume that K=1000 and the labor supply in the
economy is L^S=1000
Assume that A=1 for this question. Say that the government approves a legislation that mandates a
minimum real wage of 1 With the new legislation , the number of unemployed workers in the economy is
250
750
500
1000
None of the other answers.

Solution
3.9(207 votes)

Answer

1000 Explanation 1. Calculate MPL with given values Substitute A = 1, K = 1000, and L = 1000 into the formula MPL = \frac{A}{2}\sqrt{\frac{K}{L}}. This gives MPL = \frac{1}{2}\sqrt{\frac{1000}{1000}} = \frac{1}{2} \times 1 = 0.5. 2. Determine equilibrium real wage The equilibrium real wage is equal to the MPL, which is 0.5. 3. Compare minimum wage to equilibrium wage The mandated minimum real wage is 1, which is higher than the equilibrium wage of 0.5. 4. Calculate unemployment due to minimum wage Since the minimum wage is above the equilibrium wage, it causes unemployment. Given that the labor supply L^S = 1000, and the number of unemployed workers is the difference between labor supply and labor demand at the minimum wage. With a minimum wage of 1, no workers are demanded (since 1 > 0.5), leading to all 1000 workers being unemployed.

Explanation

1. Calculate MPL with given values<br /> Substitute $A = 1$, $K = 1000$, and $L = 1000$ into the formula $MPL = \frac{A}{2}\sqrt{\frac{K}{L}}$. This gives $MPL = \frac{1}{2}\sqrt{\frac{1000}{1000}} = \frac{1}{2} \times 1 = 0.5$.<br /><br />2. Determine equilibrium real wage<br /> The equilibrium real wage is equal to the MPL, which is $0.5$.<br /><br />3. Compare minimum wage to equilibrium wage<br /> The mandated minimum real wage is $1$, which is higher than the equilibrium wage of $0.5$.<br /><br />4. Calculate unemployment due to minimum wage<br /> Since the minimum wage is above the equilibrium wage, it causes unemployment. Given that the labor supply $L^S = 1000$, and the number of unemployed workers is the difference between labor supply and labor demand at the minimum wage. With a minimum wage of $1$, no workers are demanded (since $1 > 0.5$), leading to all $1000$ workers being unemployed.
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