1. "ROOM" TO RAISE PAY
Consider the following before-and-after situation for a profit seeking firm concerned about
its "competitiveness."
Before
After
Wage rate (W):
$50 per unit of labor
W:
???
Output (Y):
2,000
Y:
2,500
Labor (L):
100
L:
110
A. For the "After" situation, does this employer have room to increase W by 5%?
Demonstrate and explain.
B. For the "After" situation, does this employer have room to increase W by 15%?
Demonstrate and explain.
C. For the "After" situation, how much room is there to increase W without the firm losing
competitiveness? Demonstrate and explain.