a.The equilibrium wage and number of labor hours worked per week are determined at the intersection of the supply and demand for labor curves. These curves are represented by AE and MRP. Equate these two curves to get L first.
3.00 + 0.000375L = 13 - 0.000433L
L = 12,376.24
Insert L into the MRP curve to get equilibrium wage rate.W = MPL = 13.00 - 0.000433(12,376.24)
W = $7.64
b.The economic rent is the area of the triangle between W ($7.64) and AE bounded by
and
The area is (1/2)(base)(height)
b = 12,376.24 - 0 = 12,376.24
h' = 7.64 - 3 = 4.64
economic rent = (1/2)(12,376.24)(4.64) = $28,712.88