Suppose that a state raises its minimum wage from $8/hour to $13/hour. Using an isocost-isoquant diagram, show how this will affect labor demand of a firm which produces Q = 200 units of output each month using two inputs:

Suppose that a state raises its minimum wage from $8/hour to $13/hour. Using an isocost-isoquant diagram, show how this will affect labor demand of a firm which produces Q = 200 units of output each month using two inputs: low-skilled labor and capital. Please label and explain your diagram completely.

Question 2

Susan consumes two goods, bananas and toast. The price of a banana is $0.30 and the price of a slice of toast is $0.15. Suppose that with her current consumption, Susan’s marginal utility from the last banana she consumes is 12 while her marginal utility from the last piece of toast is 3. Is Susan currently maximizing utility? If not, how should Susan adjust her consumption to maximize utility?

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