Question 14.21

13. There is only one labor market in Profunctia. All workers have the same skills, and all firms hire workers with these skills. Use the accompanying diagram, which shows the supply of and demand for labor, to answer the following questions. Illustrate each answer with a diagram.

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  1. What is the equilibrium wage rate in Profunctia? At this wage rate, what are the level of employment, the size of the labor force, and the unemployment rate?

  2. If the government of Profunctia sets a minimum wage equal to $12, what will be the level of employment, the size of the labor force, and the unemployment rate?

  3. If unions bargain with the firms in Profunctia and set a wage rate equal to $14, what will be the level of employment, the size of the labor force, and the unemployment rate?

  4. If the concern for retaining workers and encouraging high-quality work leads firms to set a wage rate equal to $16, what will be the level of employment, the size of the labor force, and the unemployment rate?