Re: dse 2004

Posted by aditi5000 on May 31, 2012; 12:48pm
URL: http://discussion-forum.276.s1.nabble.com/dse-2004-tp7345502p7577416.html

Yes, I think the thing you said about monopoly makes sense, that's probably why the situation is pareto inefficient from the perspective of the firms (and society).

Hey about question 21, when we equate dd and ss of labour, we get w = W/P = 1/2 ie this is the real wage. so nominal wage W = P/2 (ie market determined prevailing wage rate)
But the exogenous min. subsistence wage is Wo
So the firm will pay out whichever is more between P/2 and Wo ... that's because if the price levels are high and p/2>wo, workers only care about getting real wages i.e. p/2
and on the other hand, if the min wage level exceeds the real wage ie w0>p/2, the firm still has legal obligation to pay out the minimum wage of W0 and thus they can't pay out only the real wage level