Use tables below to answer the question. PRODUCTION FUNCTION LABOR MARKET Labor
ID: 1223723 • Letter: U
Question
Use tables below to answer the question.
PRODUCTION FUNCTION LABOR MARKET
Labor hours Real GDP Real wage Quantity of labor
(per day) (2016 dollars) (2016 dollars) demanded supplied
10 150 1.00 20 60
20 270 0.90 30 50
30 370 0.80 40 40
40 450 0.70 50 30
50 510 0.60 60 20
What is the quantity of labor employed, potential GDP, the real wage, and total labor income?
Explanation / Answer
The quantity of labour employed is the quantity at which the labour demand is equal to labour supply.
According to the question, Quantity of labour employed would be 40 hours per day.
The potential GDP is the Real GDP at the full employment level of labor. Thus, at 40 hours per day, Potential GDP would be 450 (2016 Dollars)
The real wage rate at 40 hours per day is 0.80 (2016 dollars)
The total labor income would be Real Wage Rate * Hours employed
Total Labor income = 0.80 * 40 = 32 (2016 dollars)
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