Question

The company Peach has the following production function: Y= -2L^2 +32L (for L less than or...

  1. The company Peach has the following production function:

Y= -2L^2 +32L (for L less than or equal to 8)

  1. Show that MPL = 4(8-L)
  2. Given the wages are $12, how many workers would the firm hire?
  3. Letting the market decide the wages, and given a labor supply of L = 2 + ((1/2)w), how many workers would be hired, and at what wage?
  4. If the government imposes a minimum wage of $16, how much unemployment would that create?

A virus called the Heineken virus spread through the world and creates a negative labor demand shock as well as a negative labor supply shock, so that the MPL of the firm is now MPL = 24-4L and the labor supply is L = 1+ ((1/2)w)  There is no minimum wage anymore.

  1. Without calculation, how would you predict the wages and labor quantity to evolve from the previous equilibrium (question c))?
  2. Calculate the equilibrium wage and labor.
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