Figure 18-4

-Refer to Figure 18-4.When the relevant labour demand curve is D₁ and the labour market is in equilibrium,how can we interpret W₁

Question

Figure 18-4
 
-Refer to Figure 18-4.When the relevant labour demand curve is D₁ and the labour market is in equilibrium,how can we interpret W₁

Quizplus · Accepted Answer

When the labour market is in equilibrium at point E₁, the wage rate is W₁. This is the market-clearing wage rate, where the quantity of labour demanded by firms (QD) is equal to the quantity of labour supplied by workers (QS). It represents the market value of a unit of labour, and all workers are willing to work at this wage rate. Therefore, the correct answer is C. Option A is incorrect because the marginal product of labour is equal to the value of the additional output produced when an additional unit of labour is added to the production process, and we do not have this information. Option B is incorrect because the opportunity cost of leisure is the wage rate foregone by not working, which is W₁, and we are not comparing it to any other value in this scenario. Option D is irrelevant because the graph only shows the demand and supply of labour, not the price of output.

Figure 18-4 -Refer to Figure 18-4.When the Relevant Labour Demand Curve Is