- When Classic Oak hires two workers rather than one, the marginal product of the second worker would be 5 tables per week.
- There would be $800 in additional revenue if employment went from 2 to 3 workers.
- 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.