1. Unit 5 Resource Market

2. Minimum Wage Why or why not?
Assume the government was interest in increasing the federal minimum wage to $15 an hour
Do you support this new law?
Why or why not?

3. Is increasing minimum wage GOOD or BAD?
GOOD IDEA-
We don’t want poor people living in the street, so we should make sure they have enough to live on.
BAD IDEA-
Increasing minimum wage too much leads to more unemployment and higher prices.

4. Government sets up a “__________.”
Fast Food Cooks
Minimum Wage
Wage
Surplus of workers
(Unemployment) SL
Above
Equilibrium
$15
$10 $6
QS QD
The government wants to HELP workers because the equilibrium wage is too low
Government sets up a “__________.”
WHERE?
Wage Floor DL
QD QS QE
Q Labor

5. Quiz? or not? Minimum Wage SL DL How many workers are hired?
How many workers are fired?
How many workers entered the industry?
How many workers are unemployed?
Wage SL
$15
$10 $5
Wage Floor DL QL

6. “Glass Ceilings”

8. Combining Resources
Up to this point we have analyzed the use of only one resource.
What about a firm wants to combine different resources?
For consumers, we want Utility Maximization, which means every penny we spend worth the money.
For producers, we want Cost Minimization, which means every worker we hire worth the money.

9. Utility Maximization $5 $10
If you only have $25, what combination of movies and go carts maximizes your utility?
2 movies & 1 go cart
# Times
Going
Marginal Utility
(Movies)
MUm/Pm
($10)
Marginal
Utility
(Go Carts)
MUc/Pc
($5)
1st 30 10
2nd 20 5
3rd 2
4th 1 3 2 2 1 1
.40
.50
.20

10. You’d hire 2 robots & 3 workers
Least Cost Hiring Rule
How much additional output does each resource generate per dollar spent?
$10 $5
If you only have $35,
what combination of robots and workers will maximize output?
You’d hire 2 robots & 3 workers
MPx Wx
# of labor employed MP
(Robot)
MP/WX
(WR=$10)
MP (Labor)
MP/WY
(WL=$5) 1 30 3 20 4 2 15 10 5
.50

11. Least Cost Rule $10 MP $15 MP/WX MP/WY
If you only have $75, what combination of Horses & Ox will maximize output?
$10
$15
# of labor employed MP
(Horses)
MP/WX
($10)
(Ox)
MP/WY
($15) 1 80 90 2 70 75 3 60 4 50 45 5 15 6 30

12. Least Cost Rule $25 $15 MP MP/WX MP/WY
If you only have $100, what combination of R2-D2 & Wall-E will maximize output?
$25
$15
# of labor employed MP
(R2-D2)
MP/WX
($25)
(Wall-E)
MP/WY
($15) 1
150 2
125
120 3
100 90 4 50 60 5 25 45 6 30

13. Profit Maximizing Rule (Least-Cost Rule) for Combining Resources
MPx MPy
Wx Wy =
Profit Maximizing Rule (Least-Cost Rule) for Combining Resources
MRPx
MRCx
= = 1
MRPy
MRCy
This means that the firm is hiring where MRP = MRC for each resource x & y

14. Practice: What should the firm do? hire more, hire less, or stay put?
MRP
MRC
>1
MRP
MRC =1
MRP
MRC
<1
Hire More Stay Put Hire Less
MRPL= $15
PL= $6
MRPC= $10
PC= $10
MRPL= $5
PL= $10
PC= $15
MRPL= $25
PL= $20
MRPC= $15
MRPL= $12
PL= $12
MRPC= $50
PC= $40
MRPL= $20
PL= $15
MRPC= $100
MORE
STAY PUT
LESS
LESS
MORE
STAY PUT
STAY PUT
MORE
MORE
MORE