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1、Micro ApplicationIn a perfectly competitive firm, an increase in the cost of labor causes the marginal cost curve to shift upward and the average cost curve to shift upward. Holding demand constant, quantity sold will decrease along with the firms profit.Imperfect Competition - which includes monopo
2、listic competition, some oligopoly models, and monopolies.PriceIn an imperfectly competitive market, an increase in the price of labor would shift the marginal cost (me) curve up to the left and the average cost (ac) curve up to the left. The cost of producing the next unit (me) would increase becau
3、se of the additional labor costs. The average cost per unit would rise because the labor component of each good would increase. For example. Health benefits the union demanded for retirees and active workers added between $1,500 and $2000 to every GM vehicle made in 2012.The end result of an increas
4、e in labor cost is higher prices, less goods sold, and lower profits.If the labor cost increase affects the entire industry, the industrys supply curve will shift left. The price of the good or service will rise and the quantity sold will fall.Macro PerspectiveThe labor market is connected to the go
5、ods market through the aggregate supply curve.GDPUnemploymentFrom a macro perspective. the labor market feeds into the product/goods market through the aggregate supply curve.An increase the cost of labor will shift the short run aggregate supply curve to the left. The impact of the long run aggrega
6、te supply curve depends on a variety of factors.Is the change permanent or will adjustments be made in the labor market to counter the change in labor cost?Discussion QuestionsWhat affect would an increase in health care costs have on the labor market? How would that impact the goods market?What if
7、there was an increase in worker productivity? How would a change in worker productivity impact the labor market in the short run and the long run?Increases in worker productivity can shift an aggregate supply curve right (for increases) or left (for decreases).How would the de-unionization of the workforce, immigration and trade policies, technological advancements, or costs of capital impact the labor market?What if there was an overall decrease in labor supply?
