Consider an economic model where the economy-wide real wage is determined by firms' profit-maximizing pricing decisions. If this model's simplifying assumption that all firms are identical were relaxed to allow for firms with varying degrees of market power, the resulting economy-wide real wage would no longer be a single, constant value independent of the overall level of employment.
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In a model where firms determine prices by adding a markup to their labor costs, what is the most significant analytical consequence of the simplifying assumption that all firms are identical?
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Consider an economic model where the economy-wide real wage is determined by firms' profit-maximizing pricing decisions. If this model's simplifying assumption that all firms are identical were relaxed to allow for firms with varying degrees of market power, the resulting economy-wide real wage would no longer be a single, constant value independent of the overall level of employment.
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