Labor market Test your understanding Exercise Use the concept of the MRP to solv

Question

Labor market Test your understanding Exercise Use the concept of the MRP to solve the following: Assume that workers know their MRP (marginal revenue product) However, the firms can not distinguish between high skilled and low skilled workers LOW SKILLED WORKERS MRP = $100.00 AN HOUR; THEIR OPPORTUNITY COST IS $80.00 AN HOUR HIGH SKILLED WORKERS MRP $200.00 AN HOUR, THEIR OPPORTUNITY COST = $130.00 AN HOUR Predict the equilibrium wage in the labor market, given that each firm takes the price as given (wage rates below) and earns zero (0) economic profit. Wage per hour wage 90 wage 100 wage 140 wage 150 wage 170 wage 130 wage 160 wage 120 wage 145 wage115

Explanation / Answer

Since, MRP= P*MP

At eqm

P*MP= WAGE

So, assuming the proportion of the two type be @ low skilled and 1-@ high skilled

Given wage= MRP1*@+MRP 2*(1-@)

= 100*@+200*(1-@)

=100@+200-200@

=200-100@

For @=1/2

We have

Wage=200 -100 *(1-1/2)

=200- 100*1/2

=200 - 50

=150

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

---

---

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