Module 4 Problem Set

1. When Classic Oak hires two workers rather than one, the marginal product of the second worker would be 5 tables per week.
2. There would be \$800 in additional revenue if employment went from 2 to 3 workers.
3. The company should hire 4 workers to maximize profits.

1. The labor market that would be affected is the low-skilled workers market and the equilibrium wage would go down, the demand curve would move to the right and supply would move to the left.

2. If unskilled jobs went over seas there would be more demand in the US for these jobs and less supply so the demand curve would move to the left and supply to the right. The equilibrium wage would go up.

3. On the skilled jobs graph the equilibrium wage would go down so the demand curve would go to the left and the supply would go to the right.

1. If her income increased by 20% she could buy 8 bags of pretzels and 80 bags of popcorn

2. The line will have less slope if the price of pretzels increases.

3. If the price of popcorn increases there will be less slope in the line as she will be able to buy more popcorn in that case.

1. Rebecca’s demand for pretzels in the indifference curve would look like this: the curve would be downward sloping but higher within the graph would be preferred. If consumption of pretzels decreased, consumption of popcorn would increase to keep the same level of satisfaction.

1. It would not be a good idea to pay Bill a flat rate for his salary because if the farm had bad luck that year we would be loosing money and paying Bill too much. Also if Bill didn’t work that hard he would be getting more salary than deserved. Better to base salary on the true outcome and revenue from that year.

2. The economic problem here would be a moral hazard. This is the tendency of a person who is imperfectly monitored to engage in undesirable behavior. So if Bill is not working that hard that creates a moral hazard problem because he would be getting paid too much.

3. The most efficient way to ensure that Bill works hard is to base his salary on the revenue generated from his work.

Chapter 19

Post three of your “margin notes” from your reading of the chapter to your blog. Why did you make the comment you made in the margin? What did you find confusing, useful, or important about the passage you commented on?

I think that compensating differentials are important when thinking about wage differences. This didn’t really cross my mind before; non-monetary factors matter a lot when people search for jobs- that is why they usually pay more for unenjoyable jobs.

Also, once you acquire a job and stay with it you gain more human capital within that job because of training, education, and equipment accumulation, so wages may go up with human capital as well.

Interesting how much discrimination is prevalent still today. i think it is important to comment on this because it is hard to say whether an employee is being discriminated against or if one person just has more human capital than the other. I think that competition in acquiring jobs will become a lot more challenging as we move into the future- everyone can learn on the internet but that piece of paper (diploma) still means a lot in the labor market- shows that you did not quit- completed something.

Chapter 18 Blog

Pretend for a moment you are the instructor developing this course. Write 3 short answer questions for an exam over this chapter that you believe cover the most important points in the chapter. Post all three questions on your blog. Remember that an exam only has 10 questions and yet has to assess the students’ understanding of the entire unit.

1. What does an upward sloping labor-supply curve tell you about people’s working schedules?

2. How are labor markets different from most markets?

3. What causes the labor-demand curve to shift?

Ch 17 Reflection

What do you think about anti-trust laws with respect to the cell-phone industry? Do you think the cell phone industry could be an oligopoly? Why or why not?   An oligopoly is a market where only a few sellers offer similar or identical products. This applies to the cell-phone industry because At&t, Verizon, and TMobile basically make up the market with a few smaller firms. A change in price from one firm can have a big impact on the others, creating an interdependence within these firms. This is where Anti-trust laws come in to keep the competition going. These laws create a price that firms must sell at so they do not drastically change and put competitors out of business.

Take a few moments to explain how a decision box works. What about Oligopolies is most unclear to you?

A decision box is used to illustrate and determine how production decisions affect profits. The box has four quadrants and compares two companies or entities. One section could be the outcome if they both produce more, the other could be if one produced more that the other and another if they both produce less. Looking at different outcomes can help a firm or entity to make the best decision in what to do next.

The hardest part to understand in this chapter is how cooperation does not work in an oligopoly. I just think of how cooperation works in nature and it helps me to understand how competition is important.

Module 3

Which type of market does this business or industry compete in? List the characteristics of the market type from the text and explain how your example fits them and where it does not.

The example i chose for this module is the ski industry. I chose this because i work at Sunlight and we have an interesting position within the market because of the size and rustic, non-corporate atmosphere of this resort. The ski industry competes within the tourism market which highly depends on income and spending patterns throughout society, oh and weather is a huge factor as well. I would say that the characteristics of this market are that there is some competition but i would say that it has monopolistic competition because this market has many firms with similar products but they are not identical. (i.e. different resorts throughout the state). The type of product is unique to each mountain, and there is slight control in prices throughout this industry because there are large barriers to enter the market.

Describe how your example firm prices it’s product(s). Does it’s behavior fit what would be expected based on your answer to question 1? If not, why not?

Ski resorts cannot survive on lift tickets alone, it must expand its revenue to other products as well. But instead of making the resort like a strip mall with different restaurants and shops, ski resorts must keep revenues within the company making it more like an amusement park where the different restaurants and hotels are connected to one firm. From one article i read, “No Business Like Snow Business,” the author explained that ski resorts only make around 50% of their profits from lift ticket sales. The other 50% comes from food, ski school, rentals, lodging and retail. This factor takes risks like weather and income differentiation away from the industry allowing it to rely on more than one source of income. Based on the answer form question #1, since there a lot of barriers to enter this market, most ski resorts are allowed to become stable with consistent growth because it is not likely to be disrupted by new competition. Thus, as long as people keep coming, resorts are able to keep raising prices with inflation with no problems in elasticity.

Sometimes markets change over time. Do you expect that to happen in this industry? Why or why not? What changes are most likely?

I think that climate change is a huge factor in determining future changes within the ski industry. From a NY Times article from 2012 i read, that year was the fourth-warmest winter on record since 1896. This trend is forcing resorts to open later and close earlier. If lifts are not running, that takes a huge tole on alternate sources of income for the firm as well, like restaurants and lodging.  One example from the article explains just how much revenue is effected with weather changes. “Between 2000 and 2010, the report said, the \$10.7 billion ski and snowboarding industry, with centers in 38 states and employing 187,000 people directly or indirectly, lost \$1.07 billion in revenue when comparing each state’s best snowfall years with its worst snowfall years.”  I expect this trend to become more drastic as we move into the future. I think the most likely changes will come through summer activities like mountain biking and summer festivals. Since the resorts only receive 50% of their income through ticket sales they could really benefit in keeping that other 50% through lodging, food and retail at a maximum throughout the summer months.

Provide at least 2 outside sources for information on this business or industry in formal citation format (MLA or APA).

Works Cited-

Ch 16 Reflection

Muse a little about the role of advertising in industries classified as monopolistic competition or even oligopoly. Can advertising make markets either more or less competitive? How?

Advertising plays a big role in the market. Its purpose is to make product names become known and add value to that product. In monopolistic competition there is a down sloping demand curve so firms have to charge prices above marginal cost. Advertising can convince people to pay these prices. Since these monopolies are still competitive, meaning that there are many firms similar, advertising will make one product more desirable than others. I think advertising makes these markets more competitive because when one firm proves that it is willing to pay more to advertise its product one may think that this product has better quality and thus buy that product. Some do say however that advertising can make these markets less competitive because they claim that advertising manipulates customers opinion about brand names and products, but i don’t fully agree with that.

What was the most interesting thing you learned in this chapter? Why was it interesting to you?

It is interesting however to think of how advertising affects people’s opinions of brands and various products. Some claim that advertising is more psychological rather than informational like the example of advertising for soda. Throughout most commercials they don’t inform consumers of how the product tastes or what is in it, they will show people having fun and being happy with the product conveying more of a subconscious message of why their product is better than others. But i still do not think this is manipulation rather it is trying to deliver a message in a subtle way.