All perfectly competitive fast-food firms are hiring the profit-maximizing quantity of labor and are paying their workers $7 per hour.If the government raises the minimum wage to $8 per hour:

Question

Quizplus · Accepted Answer

Since all firms are already hiring the profit-maximizing quantity of labor and paying them $7 per hour, an increase in the minimum wage to $8 per hour will result in the value of the marginal product being less than the wage. This means that firms will now be paying more than the value of the output produced by each worker, leading to decreased profits. In order to maintain profits, firms will lay off some workers to reduce labor costs. Therefore, choice B is the correct answer.

All Perfectly Competitive Fast-Food Firms Are Hiring the Profit-Maximizing Quantity