A country has a labor demand curve W 100 4L where W is the

A country has a labor demand curve: W = 100 - 4L where W is the real wage and L is the employment of labor.. Labor supply is fixed at 5. Assume that employers get to keep all revenue after thay have paid off their labor. Assuming that national income = employers\' income + labor income, national income for this country is:

Select one:

a. 450

b. 3920

c. 475

d. None of the above.

Solution

W = 100 - 2L

L = 5 => W = 100 - (4 x 5) = 80

Thus, W = 80.

When L = 0, that is no labour is supplied, the employers get to keep all the wages.

That is, at L = 0.

W = 100 => Employers\' income.

National income = employers\' income + labor income

= (100 + 80) x 5/2

= 450

Correct answer is option a. 450