Final answer:
The minimum wage of $20/hour in LA County is higher than the average wage of $15/hour at McDonald's, therefore it is higher than the prevailing market wage. A substantial increase in minimum wage can lead to employment challenges and a potential surplus of labor if it exceeds the equilibrium wage for low-skill labor.
Step-by-step explanation:
If the average worker at McDonald's makes $15/hour and the minimum wage set by LA County is $20/hour, it indicates that the minimum wage is higher than the average, or prevailing market wage. Therefore, the correct answer to your question is: c) The minimum wage is higher than the prevailing market wage.
When the minimum wage is set above the equilibrium wage for low-skill labor, the effect can be substantial. A higher minimum wage, like LA County's $20/hour, could reduce the quantity of employment as employers might choose to hire fewer workers or increase automation due to the higher cost of labor. This economic impact is more pronounced when the minimum wage is significantly above the prevailing market rate. Historically, when the minimum wage is set near the equilibrium wage, it does not create a large surplus of labor; however, dramatic increases can lead to employment challenges and a surplus of labor.