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Are hourly employment costs a fixed or variable cost?

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a) Are hourly employment costs a fixed or variable cost?

b) How is the average total cost curve affected by these changes in costs? In the chart you found, what has been the trend in employment costs since 2002?

c) What is the likely implication of the trend in employment cost on profits?

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1. Hourly employment costs are a variable cost. As an hourly worker works one more ...

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solution gives an overview for fixed cost and variable cost

See Also This Related BrainMass Solution

Optimal Choice of Output

Problems are attached as PDF file as well.


1.The data in the following table give information about the price (in dollars) for which a firm can sell a unit of output and the total cost of production.

a)Fill in the blanks in the table.

b)Show what happens to the firm's output choice and profit if the price of the product falls from $60 to $50.

Q P R(at P=60) C(at P=60) Profit (at P=60) MC MR(at P=60) R(at P=50) Profit (at P=50)
0 60 100
1 60 150
2 60 178
3 60 198
4 60 212
5 60 230
6 60 250
7 60 272
8 60 310
9 60 355
10 60 410
11 60 475

2.Using the data in the above table, show what happens to the firm's ouput choice and profit if the fixed cost of production increases from $100 to $150 and then to $200. Assume that price of the output remains at $60 per unit. What general conclusion can you reach about the effects of fixed costs on the firm's output choice?

3.Use the same information as in Exercise 1.
a.Derive the firm's short-run supply curve.
b.If 100 identical firms are in the market, what is the industry supply curve?

4.In 1996, Congress raised the minimum wage from $4.25 per hour to $5.15 per hour, and then raised again in 2007. Some people suggested that a government subsidy could help employers finance the higher wage. This exercise examines the economics of a minimum wage and wage subsidies. Suppose the supply of low-skilled labor is given by
Where Ls is quantity of low skilled labor (in millions of persons employed each year), and w is the wage rate (in dollars per hour). The demand for labor is given by
Ld= 80-10w
a.What will be the free-market wage rate and employment level? Should the government sets a minimum wage of $5 per hour. How many people would then be employed?
b.Suppose that instead of a minimum wage, the government pays a subsidy of $1 per hour for each employee, what will the total employment be now? What will the total level of employment be now? What will the equilibrium wage rate be?

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