Microeconomic Theory
12th Edition
ISBN: 9781337517942
Author: NICHOLSON
Publisher: Cengage
expand_more
expand_more
format_list_bulleted
Question
Chapter 16, Problem 16.9P
To determine
To find:
Wage to be offered to construction worker
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Q) Suppose that utility for a worker is u(w)=w^.5. If the wage (w) offered is $64, there is a 50% chance of being fired, and switching costs are $28. What is the expected utility for the worker?
Solve it early I upvote.
A consumer has preferences over bundles of leisure (L) and consumption (z) respresented by
the utility function u(L, r) = La and has 24 hours in the day to divide between work and
lesiure. This consumer has sorme positive amount of nonwork income per day (m > 0) and
is able to select how many hours they wish to work at some positive wage per hour (w > 0).
Find the consumer's reservation wage as a function of m: this is the lowest wage at which the
consumer will work positive hours. Equivalently, it is the highest wage at which the consumer
will work zero hours. (Hint: this is all about the MRS when working zero hours.)
Suppose Lesley is deciding on career paths. She could choose career A, which earns $50,000 per
year and has a 10% chance of layoff each year, or career B, which earns 80,000 per year and has a
30% chance of layoff each year. When laid off, she earns 0.
Suppose her utility over annual earnings is equal to U(E) = VE
(a) What would be her preferred job if she had to choose one or the other? If she could
allocate her time to both jobs (e.g., could spend 90% of time in job A and 10% in job B) what
would be her ideal allocation of time between jobs?
Knowledge Booster
Similar questions
- A worker has 110 hours available in a week that can be used for leisure (L) or work (h). The utility function is U = (1 - α)ln(C) + α ln(L), where C is consumption. a) The price per unit of consumption is 1, the hourly wage is w, and the worker has a non-labor income of V. Show that the labor supply is: h* = (110(1-a)- (av)/w). Also, find the demand for consumption and leisure. b) What is the effect on labor supply of i) an increase in the hourly wage and ii) an increase in non-labor income? c) Set α = ½. What are C, L, and h when w = 200 and V = 10000? What is the reservation wage? d) What is the effect on labor supply of i) a 30% income tax and ii) a 10% wealth tax (on V)? e) What is the labor supply if V increases to 11600? f) An increase in V to 11600 gives the worker the same utility as w = 250 and V = 10000 (you do not need to show it). What are the income, substitution, and total effects on labor supply of an increase in wage from 200 to 250 while V remains at 10000?…arrow_forwardConsider a competitive economy that has four different jobs that vary by their wage and risk level. The table below describes each of the four jobs.Job Risk ( r ) Wage ( w)A 1/5 $ 3B 1/4 $12C 1/3 $23D 1/2 $25All workers are equally productive, but workers vary in their preferences. Consider a worker who values his wage and the risk level according to the following utility function:u(w, r) = w + 1/r2Where does the worker choose to work? Suppose the government regulated the workplace and required all jobs to have a risk factor of 1/5 (that is, all jobs must become A jobs). What wage would the worker now need to earn in the A job to be equally happy following the regulation?arrow_forwardAs an employer, suppose you find it costly to monitor employee effort 100 percent of the time. What compensation options, in terms of the basis of pay, are available to ensure that you get appropriate levels of employee effort? What factors would you consider in choosing among these options?arrow_forward
- A firm sells its output Q for a price of p=1. It pays a fixed wage w to its single worker. Its worker produces Q(e)=24e units of output, where e is the worker's effort. The cost of effort is C(e)= 4e2. The firm pays a fixed wage only if the worker meets their target Q. If not, the worker is fired and takes an outside option of O. Treat all variables as continuous. Assume the firms pay the lowest fixed wage it can. What wage does it pay, so that the worker does not quit?arrow_forwardA student has a part-time job in a restaurant. For this she is paid $8 per hour. Her utility function for earning $I and spending S hours studying is U(I,S) = I^1/4 S^3/4 (The utility function is a measure of the `usefulness' or `worth' to the student of a certain combination of money and study time). The total amount of time she spends each week working in the restaurant and studying is 100 hours. How should she divide up her time in order to maximise her utility?arrow_forwardYour current salary is a fixed sum of $93,025 per year. You have an offer for another job. The salary there is a flat $62,500 plus a chance to earn an additional $105,600 if the company does well. Assume that your utility from income can be expressed as: U = √Income. For example, at an income level of $100, your utility level is 10; your utility level from the current salary of $93,025 is 305. The probability of success for the company must be equal to at least percent to induce you to take this job. (Round your response to two decimal places.)arrow_forward
- Emma (the agent) works for Rachel (the principal). Emma's utility function is given by U=C0.5 if she doesn't work hard, and U=C0.5-3.0 if she works hard. If Emma works hard, the expected profit for Rachel increases from $1000 to $1500. Rachel cannot directly tell whether Emma works hard or not. Rachel wants Emma to work hard. Rachel is willing to pay Emma a flat salary of $144 plus a bonus. Since the expected profit increases from $1000 to $1500, Rachel is willing to pay some percentage of this excess $500 to Emma if the profit turns out to be $1500. That is, a bonus to Emma is in the form of $500*x, where x is a fraction between 0 and 1. To induce Emma to work hard, x must be greater than or equal to some percentage. Answer this number as % and up to 2 decimal places. (That is, your answer should be between 0 and 100.)arrow_forwardJasmine can work as much as 64 hours per week. She receives $200 per week in non-wage income. Her utility function for leisure and consumption is U(R, C) = 320R(1/2) + 2C , where R is hours of leisure and C is consumption. The price of consumption is unity. (a) How much will Jasmine work when the wage is $20 per hour?arrow_forwardSuppose that the expected value of weekly profits for an ice cream shop, before paying the manager, Amy, is where e is Amy's weekly avertime hours. Amy is risk-neutral but incurs a cost for working overtime. Thus, tatal expected surplus is What level of effort maximizes total surplus? The value of overtime that maximizes total surplus is e-hours. (Enter your response rounded to one decimal place.) E(x)=500+10c C(e)=² E(S)-[(x)-C(e).arrow_forward
- The utility of Amanda for leisure (L) and income (Y) is U = LY. The price of income is 1. If Amanda uses her spare L hours a day, (24 - L) hours will be labored. Since wages are w, the daily income is (24 - L). If the wages are positive, show that the optimal number of leisure hours that Amanda will use will always be the same. How much leisure time does Amanda demand and how much work time do she want to provide?arrow_forward1) Consider observable effort. Assume that if the Agent does not accept the wage the Principal offers his outside option gives him a net utility of v =2. The probability of high profit under e=1 is %, the probability of high profit under low effort is 1/4. Calculate the minimum wage that the agent will accept to work and supply the asked effort when the Principal asks him to supply e=0, and e=1. Let us call these wages wo and wi. Now, assume that instead of offering him a flat wage, the Principal is offering the agent a wage schedule (, w) where the agent receives when the (gross) profit is High and w when the (gross) profit is low. Calculate all the lowest cost wage schedules the agent will accept to supply e=1, and e=D0. Does the principal's expected net profit change when he pays the minimum cost wage schedule instead of the flat wage minimum cost wage? Explain the intuition for your answer.arrow_forwardx-100 Consider lottery L as (0.8,6500; 0.2,100), by using u(x)=- as the DM's utility function 80 a) Compute E(u for L). b) Find CE(L). C) Find RP(L).arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSON
Engineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education