In a Competitive Labor Market, the Supply of Labor Curve

question 55

Essay

In a competitive labor market, the supply of labor curve is expressed as:
AE = $5 + 0.0025L,
where AE represents the average expenditure ($/unit) and L represents units of labor hired per unit of time. The demand for labor is based on the following expression:
MP = 5 - 0.001L,
where MP represents marginal product of labor. Revenue from the final good is $5 per unit sold in a competitive market.
a. Determine the equilibrium wage rate and labor employment rate.
b. Compute the economic rent earned by labor.

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Definitions:

Quantity Supplied

The total amount of a good or service that producers are willing and able to sell at a given price in a given time period.

Quantity Demanded

The total amount of a good or service that consumers are willing to purchase at a given price over a specified period.

Equilibrium

A situation where the equilibrium between market demand and supply is reached, leading to stable prices.

Equilibrium Price

The price at which the quantity of goods supplied is equal to the quantity of goods demanded in a market, resulting in no surplus or shortage.