Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
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Chapter 4, Problem 21PAA
To determine
The graphical representation of each worker’s opportunity set for each hourly wage and determine the number of hours of labor each worker supplies at a wage of $22 per hour.
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Suppose that the owner of Boyer Construction is feeling the pinch of increased premiums associated with worker’s compensation and has decided to cut the wages of its two employees (Albert and Sid) from $25 per hour to $22 per hour. Assume that Albert and Sid view income and leisure as “goods,” that both experience a diminishing rate of marginal substitution between income and leisure, and that the workers have the same before- and after-tax budget constraints at each wage. Draw each worker’s opportunity set for each hourly wage. At the wage of $25 per hour, both Albert and Sid are observed to consume 12 hours of leisure (and, equivalently, supply 12 hours of labor). After wages were cut to $22, Albert consumes 10 hours of leisure and Sid consumes 14 hours of leisure. Determine the number of hours of labor each worker supplies at a wage of $22 per hour. How can you explain the seemingly contradictory result that the workers supply a different number of labor hours?
Suppose that the owner of Boyer Construction is feeling the pinch of increased premiums associated with workers' compensation and
has decided to cut the wages of its two employees (Albert and Sid) from $21 per hour to $17 per hour. Assume that Albert and Sid view
income and leisure as "goods," that both experience a diminishing rate of marginal substitution between income and leisure, and that
the workers have the same before- and after-tax budget constraints at each wage. Albert and Sid's opportunity set is presented below:
Albert and Sid's Opportunity Set
Income
0
5 10 15 20 25 30
Leisure Hours
What is the value of A when the wage is $21?
(Assume a 24-hour work day.)
What is the value of A when the wage is $17?
(Assume a 24-hour work day)
At the wage of $21 per hour, both Albert and Sid are observed to consume 12 hours of leisure (and equivalently supply 12 hours of
labor). After wages were cut to $17, Albert consumes 10 hours of leisure and Sid consumes 14 hours of leisure.…
Suppose that the owner of Boyer Construction is feeling the pinch of increased premiums associated with workers’ compensation and has decided to cut the wages of its two employees (Albert and Sid) from $23 per hour to $20 per hour. Assume that Albert and Sid view income and leisure as “goods,” that both experience a diminishing rate of marginal substitution between income and leisure, and that the workers have the same before- and after-tax budget constraints at each wage. Albert and Sid's opportunity set is presented below:
"The horizontal axis labeled leisure hours ranges from 0 to 30 in increments of 5. The vertical axis is labeled income. A line begins at point A on the vertical axis goes down to the right and ends at the point (25, 0)."
What is the value of A when the wage is $23?
(Assume a 24-hour work day.)
What is the value of A when the wage is $20?
(Assume a 24-hour work day.)
At the wage of $23 per hour, both Albert and Sid are observed to consume 13 hours of…
Chapter 4 Solutions
Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
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