Sacramento wants to build a new basketball stadium. This project will take 1,000

Question

Sacramento wants to build a new basketball stadium. This project will take 1,000 workers who each work 2,000 hours to complete.

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2. Sacramento wants to build a new basketball stadium. This project will take 1,000 workers who each work 2,000 hours to complete. a. If the labor market is perfectly competitive, and if the market wage for the workers is S30, then what is the opportunity cost of the labor? b. Suppose, instead, that there is unemployment among workers and some workers for the stadium would willingly work for S10. What is the opportunity cost of labor for those workers who were formerly unemployed?

Explanation / Answer

(a) For a perfectly competitive labor market, opportunity cost of labor is the wage rate, equal to $30.

(b) Opportunity cost for formerly unemployed workers = Market wage - Minimum acceptable wage

= $30 - $10

= $20

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