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

Question

Quizplus · Accepted Answer

When the minimum wage is raised to $8 per hour, the wage rate is now above the value of the marginal product of labour, which is the additional output produced by hiring an additional worker. Therefore, firms will have to increase their costs to pay for the higher wage rate. To maintain their profit-maximizing level of output, firms will have to reduce their employment levels, thereby laying off workers.

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