Hi! I\'m working on the following problem and would like some help: Thanks! Chap

Question

Hi! I'm working on the following problem and would like some help: Thanks!

Chapter 2 Practice 1. Suppose that in a competitive output market, firms hire labor from a competitive labor market (so that the profit maximization conditions for hiring labor are as we discussed in class). If the supply of this kind of labor increases, we would expect a(n) a. increase in equilibrium wage, We, and increase in equilibrium quantity of labor, I', employed. b. an increase in W"and a decrease L c. a decrease in We and a decrease L d. a decrease in We and no change in L. e. none of the above.

Explanation / Answer

Answer is e. None of the above.

Explanation:

With the increase in supply of labour, there will be surplus in the market and the equilibrium wage rate will go down and the expansion of demand take place. This will result in increase in equilibrium quantity of labor employed.

Hence, with the increase in supply, the equilibrium wage rate will decrease and equilibrium quantitty of labor employed increases.

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