Use tables below to answer the question. PRODUCTION FUNCTION LABOR MARKET Labor
ID: 1224428 • Letter: U
Question
Use tables below to answer the question.
PRODUCTION FUNCTION LABOR MARKET
Labor hours Real GDP Real wage Quantity of labor
(per day) (2016 dollars) (2016 dollars) demanded supplied
10 150 1.00 20 60
20 270 0.90 30 50
30 370 0.80 40 40
40 450 0.70 50 30
50 510 0.60 60 20
What is the quantity of labor employed, potential GDP, the real wage, and total labor income?
Explanation / Answer
Labor market is in equilibrium when quantity of labor demanded equals quantity of labor supplied. This holds true when quantity of labor = 40, for which real wage = $0.80.
When quantity of labor = 40, real GDP = $450. This is because, potential GDP equals real GDP when labor market is in equilibrium.
Total labor income = quantity of labor x real wage = 40 x $0.80 = $32
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