Suppose the market for labor is perfectly competitive and the demand for labor is and market supply is .If a minimum wage is imposed at W = 8,the loss to firms will be
A) 20
B) 40
C) 60
D) 80

Question

Suppose the market for labor is perfectly competitive and the demand for labor is  and market supply is  .If a minimum wage is imposed at W = 8,the loss to firms will be
A) 20 
B) 40 
C) 60 
D) 80

Quizplus · Accepted Answer

At a minimum wage of W = 8, the quantity of labor demanded will be less than the quantity of labor supplied, resulting in a surplus of labor. This surplus will cause the wage rate to increase above the minimum wage, as firms compete to hire workers. However, firms will face higher labor costs due to the minimum wage, resulting in a loss of profit. The loss to firms can be calculated by finding the difference between the wage rate without the minimum wage (where market supply equals market demand) and the minimum wage:

Loss to firms = (W - market wage) x (quantity of labor demanded)
= (8 - 6) x 20
= 40

Therefore, the correct answer is C.

Suppose the Market for Labor Is Perfectly Competitive and the Demand