Question

The demand for the services of trish's computer services has increased. trish employs several workers who diagnose and fix clients' computer problems. this increased demand has allowed trish to raise her prices. what will happen to the mrp and wages of trish's workers? the wage rate is w2; the old wage was w1. what is the economic rent trish's workers now earn? define economic rent. what factors affect the elasticity of supply of the labor supply curve that trish faces as she hires workers?

Answer 1

Answer:

1) what will happen to the mrp and wages of trish's workers?

the marginal revenue product (MRP) is defined as the additional revenue generated by employing one extra unit of labor. In this case, the MRP will exceed the wages paid by Trish, generating economic rent or above average returns.

2) the wage rate is w2; the old wage was w1. what is the economic rent trish's workers now earn?

If Trish raises her employees' wages due to the increasing in price, then her employees will be earning economic rent = w2 - w1. This means that their wage is higher than the usual wage that would be paid for doing that job.

3) define economic rent.

Economic rent is defined as the additional profit generated by a business that exceeds its opportunity cost.

Economic rent = marginal revenue product – opportunity cost

The opportunity cost is the extra costs or benefits lost from choosing one activity or investment over another alternative.

In this case, Trish is earning an economic rent with her business because her earnings are higher than any other earnings that she could make by investing in something else.

4) what factors affect the elasticity of supply of the labor supply curve that trish faces as she hires workers?

The elasticity of the labor supply curve shows how much a 1% change in wages affect the quantity of labor supply (in % also).

In this case, the factors affecting the labor supply would be the substitution effect and the income effect of a rise in wages. Both factors are opposite, and in this case I would believe that the substitution effect would be greater.

• The substitution effect means that workers will start working more because they are paid a higher wage. they will be willing to give up leisure time in order to work more hours and earn a higher salary.
• The income effect means that workers will start working less hours due to higher wages per hour.