How a positive supply shock affects equilibrium wage

Reference no: EM132200727

Question: Please answer the following questions graphically:

a. Please graphically illustrate how a positive supply shock shifts production function.

b. Consider the bakery example discussed in class. Figure 1 lists the hourly output of cookies and MPN at each level of employment. Let the price of one cookie be $1 and the hourly wage of a worker be $20. Please use a graph to illustrate the relationship between the bakery's total profits and number of workers. Then identify the maximum profits and the optimal number of workers in the graph.

Figure one

Number of Workers	Output	Marginal Production of Labor
0	0
1	50	50
2	90	40
3	120	30
4	140	20
5	150	10
6	155	5

c. Please graphically illustrate how a positive supply shock affects equilibrium wage and employment.

d. Please graphically illustrate when minimum wage causes unemployment in the labor market.

Reference no: EM132200727

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