Examine Tax impact on Labor Supply curve and Short Run Profit Maximization .

1. Describe (in a sentence or two) the short run profit maximization condition when labor is the only variable input? What will happen to the labor demand if price of the output goes up?

2. Illustrate what happens to employment in a competitive firm that experiences a techniqute shock such that at every level of employment its output is 200 units/hour greater than before?

3. Suppose the government imposes a payroll tax on all employers. Please draw and describe (briefly) the impact of such a tax on workers and employers for the following cases

i) labor supply curve is perfectly inelastic

ii) labor supply curve is unit elastic (i.e. upward sloping)