Answer to Question #111337 in Microeconomics for Khanyisa Mvana

Question

According to the Department of Labour’s new rates, domestic workers working in Area A (bigger metropolitan areas) who work more than 27 ordinary hours per week, must be paid a minimum of R13,69 per hour.
Workers who work fewer than 27 hours per week, must be paid a minimum of R16,03 per hour. This will mean that a domestic worker who works 45 hours per week will now earn a minimum of R2 669,24 a month.
Gardeners, drivers or people who look after children, the aged, sick, frail or disabled in a private household, all qualify as domestic workers.
Source: https://www.news24.com/SouthAfrica/Local/Stanger-Weekly/sa-domestic-workers-toget-higher-minimum-wage-20190109-2 Accessed 24/09/2019
With the aid of a diagram, discuss the welfare effect of this new legislation if the new minimum
wage is (1) below the equilibrium wage and (2) above the equilibrium wage rate with labour
hours as your quantity variable.

Based on this question, please assist. How do I label the equilibrium graph ?

Answer 1

The equilibrium of the graph is the point at whic demand for labor and supply are equal.It is also the point at whichthe marginal revenue product of labor is equal to the MPL multiplied by the price of output. The MRPL represents the additional revenue that a firm can expect to gain from employing one additional unit of labor.It is the marginal benefit to the firm from labor. Under the above assumptions, the MRPL is decreasing as the quantity of labor increases, and firms can increase profit by hiring more labor if the MRPL is greater than the marginal cost of that additional unit of labor – the wage rate. The point at which the MRPL equals the prevailing wage rate is the labor market equilibrium.