Question

Suppose the minimum wage is increased. Imagine a firm that produces its output with minimum wage workers and capital. Further suppose it must produce the same level of output both before and after the minimum wage increases. Use the following two statements to answer this question:

I. The greater is the elasticity of substitution of labor for capital, the larger will be the number of minimum wage workers who lose their jobs.

II. The cost of producing the same level of output after the minimum wage increase will be higher for a firm with flatter isoquants (closer to linear) compared to a firm with more convex isoquants (closer to L-shaped).

a. Both I and II are true.

b. I is true, and II is false.

c. I is false, and II is true.

d. Both I and II are false

Answer 1

The answer is A. i.e) Both I and II are true.

On the off chance that organizations' interest for work is elastic, an expansion in the lowest pay permitted by law will bring about a generally little decrease in business. Furthermore, unemployment is higher when the stockpile of work is increasingly elastic and unemployment is lower when the inventory of work is progressively inelastic