Suppose that the government subsidizes employment. That is, the government pays the firm s units of
consumption goods
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for each unit of labour that the firm hires. Determine the effect of the subsidy on the firm's demand for labour.
The subsidy acts to
â–¼
shift down the cost function
shift down the revenue function
shift up the revenue function
shift up the cost function
for the firm. The firm chooses the quantity of labour where
â–¼
left parenthesis 1 minus s right parenthesis MP Subscript Upper N Baseline equals w.
MP Subscript Upper N Baseline equals w minus s.
MP Subscript Upper N Baseline equals ws.
MP Subscript Upper N Baseline equals w plus s.
left parenthesis 1 plus s right parenthesis MP Subscript Upper N Baseline equals w.
sMP Subscript Upper N Baseline equals w.
There is
â–¼
an upward shift of
a downward shift of
upward movement along
downward movement along
the labour demand curve, meaning that the firm will hire
â–¼
more labour at any given real wage.
more labour at a lower real wage.
less labour at any given real wage.
more labour at a higher real wage.
less labour at a lower real wage.
less labour at a higher real wage.