Answer Happy

1. Consider the market for labour underlying the Hotel Chocolat chocolates manufacturing plant in South of Saint Lucia. Assume that the labour market is perfectly competitive, with a downward sloping demand and an upward sloping supply. The labour supply is given by Supply: w = L + 2, where w is the wage per hour worked and L is the number of employees in thousands. The marginal product of labour is given by MP₁ = 10-0.5L. The market for chocolates is in equilibrium and the price of a chocolate is $2. a. Based on the information given can leisure be a normal good? Explain (4 marks) b. Find the equilibrium wage and the level of employment. (4 marks) c. From your answer in b, is there unemployment? (1 marks) d. From your answer in b, is the market outcome efficient? Explain why or why not. (3 marks) e. The demand for chocolates goes up. Briefly describe in words how does this change in the market for chocolates affect the underlying labour market (i.e. equilibrium wage, employment and unemployment)? (4 marks) f. From your answer in e, demonstrate it diagrammatically using the templates below. (8 marks) P Figure 1: Market for Chocolates ECON3029 Individual Assignment Summer 2021/22 W Figure 2: Market for Chocolate workers g. Suppose that the market for chocolate manufacturing workers is actually composed of a single employer (monopsony). Suppose the labour and demand are still the same as in part (f), which yields the following marginal cost of labour: MC₁ = 2L + 2. On the graph below draw the demand, supply, and marginal cost of Labour in such a case. (4 marks). h. From your answer in (g), explain why the marginal cost of labour is higher than the supply of labour? (2 marks)

i. Find the monopsony wage Wm and level of employment Lm and label them on the graph in part (g). What is the unemployment level? (8 marks) j. Realising that the workers' wage is too low under the monopsony, the government is considering imposing a minimum wage at w = 10. With the minimum wage, what would be the employment level, the wage, and the unemployment level? (6 marks) k. From your answer in part (j), would the minimum wage make workers better off (compared to part (i)). (1 marks) 1. Seeing the government imposition of the minimum wage, the representative of chocolate manufacturing workers says: "although I am happy with the minimum wage, ina monopsony workers always benefit from an increase in the minimum wage". Do you agree or disagree wit the statement? Why or why not? (10 marks)