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Labor economics

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Suppose that that marginal revenue and marginal cost of job search are MR=50 - 1.5w and MC = 5 + w.

(i) What is the worker's asking wage?
(ii) Would the worker accept a $15 wage offer?
(iii) Would anything change if unemployment benefits were reduced such that the y-intercept of the MC curve increased four-fold. Show graphically.

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Solution Summary

The solution answers the question(s) regarding marginal revenue and marginal cost of job search.

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(i). The worker's asking wage would be where MR = MC
i.e., 50 - 1.5w = 5 + w
or 2.5w = 50-5 = 45
Therefore, w = w = 45/2.5 = ...

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