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Increase in demand

The following table describes the VMPs of 10 workers in a hypothetical labor market.

Worker VMP/hour

1 $10
2 $20
..
9 $90
10 $100

Further assume that Firm 1 pays a worker a piece rate and Firm 2 pays a time rate equal to $40/hour.

(a) How do workers sort themselves across firms?

(b) What happens if there is an increase in demand that increases the price of the firm's product by 10%?

(c) What is there is an increase in demand that increases the price of the product by 20%?

 

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M924135

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