Explain how the following shocks may affect the profit rate for a U.S firm and i
ID: 1130484 • Letter: E
Question
Explain how the following shocks may affect the profit rate for a U.S firm and industry and define the measure of profit rate: a) Unionization of a firm b) Tariffs on steel imports c) Increase in low wage workers in labor force d) Increase in minimum wage in NY e) Removal of all subsidies to US agriculture f) Reduction of federal tax rate on profit income Explain how the following shocks may affect the profit rate for a U.S firm and industry and define the measure of profit rate: a) Unionization of a firm b) Tariffs on steel imports c) Increase in low wage workers in labor force d) Increase in minimum wage in NY e) Removal of all subsidies to US agriculture f) Reduction of federal tax rate on profit income a) Unionization of a firm b) Tariffs on steel imports c) Increase in low wage workers in labor force d) Increase in minimum wage in NY e) Removal of all subsidies to US agriculture f) Reduction of federal tax rate on profit incomeExplanation / Answer
a) Unionization of a firm means workers has more power . So they will bargain with employers. This will affect the wage setting relation . This will shift the wage setting curve upwards. Thus the profits of firm will fall. Similarly the profits in industry will fall as other firms in industry will follow the suit. The measure of rate of profit can be total revenue minus total cost.
b) Tariffs on steel imports will increase profits for firm and for the industry . Tariffs on imports will increase the world price of steel and thus the demand for domestic steel will increase. Increased demand will increase the profits for firm and thus to the industry. The measure of rate of profits is increased demand for the domestic steel.
c) Increase in low wage workers in labour force will increase profits for firms and industry. This is because low wage workers means lower cost of production to firms in industry. Labour cost are substantial part of total cost and hence lower cost means higher profits. Measure of rate of profits is lower cost of production.
d) Increase in minimum wage means will lower the profits for firm and thus industry . Increased minimum wage means increased cost of production to firms. Increased cost would lower profits. The measure of profits rate is increased cost of production.
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