2. The supply curve for orchard workers in the Annapolis Valley is given by Tota

Question

2. The supply curve for orchard workers in the Annapolis Valley is given by Total Workers- 10 w where w is the wage (S/day). One hundred(100) orchards in the area rely upon hired workers for harvesting fruit. Each orchard is too small to be able to affect the going wage. The revenues from each orchard's harvest, Ri, is given by where Ni is the number of workers employed by that orchard a) What is the going wage? b) How many workers will each orchard hire? c) What is the rent from an orchard? One season, a blight wipes out thirty (30) of the orchards. d) What is the new level of rent from a remaining orchard? R, = 120 Ni-25 N2 i=1.100

Explanation / Answer

Total labor supply is N1 + N2 + N3 + ... + N100. Now each orchard face the same wage so they hire the same number of workers. Hence N = N1 = N2 = N3 = ... = N100. Labor supply function is given by total workers = 10w. Since each orchard hires N workers and there are 100 orchards, labor supply is 100N = 10w or w = 10N.

Labor demand function is marginal revenue function because here MR is given in terms of N.

MR(wrt N) = 120 - 5N. At the equilibrium, labor demand equals labor supply. Wage rate is generally equal to MRP and here MRP is 120 - 5N, this implies we have

10N = 120 - 5N

N* = 8 and so wage rate = 10*8 = 80. Total labor supply is 100*8 = 800.

a) Going wage rate is $80 per day.

b) Each orchard will hire 8 workers.

c) Cost to workers is 80*8 = $640 and total revenue is 120*8 - 2.5*(8^2) = $800. Hence rent is $800 - $640 = $160.

d) Now the labor demand is 120 - 5N and labor supply is 70N = 10w or w = 7N

120 - 5N = 7N

N* = 10 and wage rate w = 7*10 = $70

With reduction in demand for labor, wage rate falls to $80. Revenue is changed now to (120*10 - 2.5*(10^2) = $950 and cost is 70*10 = 700. Rent is increased to 950 - 700 = $250.

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.