Question 3 Consider a labor market in the following situation (Note: All the parameters are positive).
(1) The labor supply (Ls) by workers is given as follows.
W P
= max[kLs,w]
(2) The labor demand (La) is obtained from solving the following profit
maximization program of a producer. In the market the producer behaves as a price taker. In other words, he perceives that he could sell the product as much as possible at the current market price P.
max ΠΏ = Π Y - WL,
Y = L2
(a) Involuntary unemployment is the state in which there exist worker, who want to work at a given (real) wage level. At what level of the real wage, could we see the presence of the involuntary unemployment in the market?
(b) Find a locus of equilibrium employment along the passage of the price level P.
