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Demand and Supply of Low Skilled Labor

The following figure shows the demand and supply of low skilled labor.

(see attached file)

The marginal productivity of a high-skilled worker is $8.00 and hour greater than that of a low skilled worker. (The marginal product at each employment level is $8.00 greater than that of a low-skilled worker.) The cost of acquiring the skill adds $6.00 an hour to the wage that must be offered to attract high-skilled labor.

a. What is the wage rate of low-skilled labor
b. What is the quantity of low-skilled labor employed?
c. What is the wage rate of high-skilled labor?
d. What is the quantity of high-skilled labor employed?
e. Why does the wage rate of a high-skilled worker exceed that of a low-skilled worker by exactly the cost of acquiring the skill?

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a. What is the wage rate of low-skilled labor
From the graph, the demand and supply curve intersect at point (2, 6). Thus, the equilibrium wage rate is $6.

b. What is the quantity of low-skilled labor employed?
From the graph, the equilibrium quantity is 2.

c. What is the ...

Solution Summary

The wage rate of a high-skilled worker is compared to low-skilled ones.

$2.19