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How would you use isoquants, isocosts, MRTS, etc to explain why minimum wage might reduce employment...

How would you use isoquants, isocosts, MRTS, etc to explain why minimum wage might reduce employment in low wage labor markets in relation to cost minimization?
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Answer #1

Cost is minimized where the Price ratio is equal to the marginal rate of technical substitution:

MRTSLK = w/r

MPL/MPK = w/r

When the wage rate is high, it means now a lesser number of labor units shall be used by the firm when it goes with the cost minimization problem.

Following is the diagram:

In the above diagram, when wage is high, the isocost line shifts downward thereby reducing the number of unit of labor being used relative to the capital. Here, capital use rises. thus unemployment increase.

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