Review how output demand, productivity, input prices, worker availability, preferences, regulations, and wage policies change factor-market wages and employment.
Voda Reservoir is a profit-maximizing firm and the only producer of bottled water in a country.
Currently, Voda Reservoir is earning negative economic profit.
Voda Reservoir hires workers in a perfectly competitive labor market.
If the demand for bottled water increases, what will happen to Voda Reservoir's demand for labor? Explain.
State that Voda Reservoir's demand for labor will increase and explain that the increase in demand for bottled water will increase the price and marginal revenue of bottled water, increasing the marginal revenue product of labor.
The government implements a new regulation that increases the minimum age required for a worker to be employed in a bottled-water factory. What will happen to the market wage in the short run? Explain.
State that the market wage will increase in the short run and explain that the new regulation will decrease the supply of workers.