The t-shirt industry in Happy Valley consists of ten manufacturers. Each can hire zero, one, or two workers. If a manufacturer hires zero workers, it…
The t-shirt industry in Happy Valley consists of ten manufacturers. Each can hire zero, one, or two workers. If a manufacturer hires zero workers, it has no revenue. If it hires one worker, its revenue after deducting the cost of materials (but not the wage of workers) is $200 per day. If it hires two workers, this net revenue is $300 per day. There are 15 residents of Happy Valley who have a reservation wage of $80 per day, and there are 10 more residents who have a reservation wage $130 per day. No one else is willing to work in this industry. How would the introduction of minimum wage of $120 per day affect total worker income (include both employed and unemployed workers) compared to the situation with no minimum wage?
a. It would increase total worker income by $100
b. It would increase total worker income by $150
c. It would decrease total worker income by $100
d. No change
e. We cannot answer this question because we do not know which workers (high reservation wage or low reservation wage) will be employed at the new minimum wage.
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