Larry’s Lumber Mill sells lumber in a perfectly competitive product market. However, Larry’s Lumber Mill is the only employer of
labor in the small community where it is located. The labor market is depicted by the graph above. (a) Using the labels from the graph above, identify each of the following. (i) The optimal quantity of labor Larry’s Lumber Mill will hire (ii) The wage rate Larry’s Lumber Mill will pay (b) Using the labels from the graph above, identify the number of workers Larry’s Lumber Mill would hire if the labor market were perfectly competitive. (c) Because of growing housing demand, the price of lumber increases. What will happen to each of the following? (i) Larry’s Lumber Mill’s demand for labor. Explain. (ii) The supply of labor
1 answer:
Response:
(a). (i) Q4, (ii) W3.
(b). Q4.
(c). (i) and (ii). Review Explanation
Clarification:
Refer to the attached graph for reference. Below is the answer to the inquiry;
(a). Based on the labels in the graph above, determine the following.
(i) Larry’s Lumber Mill will optimally hire labor where marginal cost matches marginal revenue, identified as point Q4.
(ii). The remuneration rate that Larry’s Lumber Mill offers is found at the intersection where marginal revenue equals marginal cost, represented as W3.
(b). Referring to the graph, the quantity of employees Larry’s Lumber Mill would hire under perfect competition is Q4.
(c). (i). The demand for labor at Larry’s Lumber Mill will rise, causing a rightward shift in the demand curve because an increase in housing demand leads to a higher demand for lumber.
(ii). When supply is less than demand, it results in a leftward shift on the supply curve.
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