Question

A manufacturing company recorded orders of 10 million products. To maintain its output volume, the company combines efforts of capital and 100, 000 workers. Suppose a new minimum wage law is imposed by the governor, leading to a higher minimum wage in the labor market. As a manager of the company, what would you do in the following situations? Please provide clear and accurate explanations to support your answer • In the short-run, if you cannot purchase more machines (capital is fixed) and you need to maintain the company's output volume. Would you decrease the number of workers you hired? Why? • What would you do in the long-run if you want to maximize your profit and maintain the company's output volume, and why? Create an original reply below by Sunday, Oct 11th at 11:59 pm. Note: Each question worth 5pt. You need to provide correct answers with accurate explanations to earn full points. To help you answer this question, please draw an isoquant diagram for each question.

Answer 1

• Would not decrease the number of workers hired in the short-run.
• Purchase more machines in the long-run, reduce the number of workers.

Step-by-step explanation:

Remember, we are told that the company cannot purchase more machines (capital is fixed), hence retaining the 100,000 workers would be the best decision in order to maintain the company's output volume even though the labor cost would be higher.

However, in the long-run, in order to reduce labor cost, purchasing more machines is a good strategy to maximize your profit and maintain the company's output volume.

In summary,

• Higher minimum wage = higher cost of cost = lower profit
• Higher minumum wage + reduced number of workers = maintain company's output volume + maximized profit.