Microeconomics (7th Edition)
Microeconomics (7th Edition)
7th Edition
ISBN: 9780134737508
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 17, Problem 17.4.6PA
To determine

Relation between pay and marginal revenue product.

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According to the Economics Policy Institute (Mishel and Wolfe, 2019) CEO pay has grown 940% since 1978 while the compensation of the average worker has only risen 12%. While you can easily find sources that provide statistics that conflict with these numbers, you would be hard pressed to find any credible source that refutes the idea that the rate of pay of CEO’s and other upper-level managers has not dramatically increased relative to an organization’s lower-level employees in just about any 10 or more year period over the past 60 years. In the world of Adam Smith, the “invisible hand” of the free market capitalistic model would address inequities/out of balances. Are the forces represented by the “invisible hand” working? Why or why not? Is there an ethical dimension to the discussion of upper-level manager compensation? Why or why not? How does (or does it?) levels of pay of upper management impact the rest of us commoners?
Use labor supply and demand graph to illustrate the effect on league salaries (show old and new equilibrium salary) of: (a) An increase in the number of players available (b) A minimum salary set above the equilibrium level (c) The teams are now how to pay more for the players’ health insurance
Address the following hypothetical scenario: Suppose that hypothetical major league baseball player, Joe Batz, is awarded a $20 million three year contract to play for Team ABC. Using the information from Chapter 13, explain the economist's justification for why Joe is being paid this very high salary.

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Microeconomics (7th Edition)

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