LABOR ECONOMICS
8th Edition
ISBN: 9781260004724
Author: BORJAS
Publisher: RENT MCG
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Chapter 5, Problem 13P
To determine
Determine labor
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Suppose there are two identical job offers in the same competitive labor market for a software developer position. Both offers have the same salary of $80,000 per year. However, Job A allows the employee to work from home, while Job B requires the employee to commute to the office daily. The average monthly commuting cost for Job B is estimated to be $400.
Calculate the compensating differential in this scenario, and determine if it makes economic sense for the employee to choose Job B over Job A.
Assume a working year consists of 12 months.
You have two choices in jobs. Job A means you earn $70,000 a year, in an area where the average income is $80,000. Job B means you earn $60,000 a year in an area where the average income is $50,000. Assume all other factors such as housing quality, schooling, etc are the same. A "rational profit maximizer" would:
Have an indeterminate choice.
Be indifferent between the two wages.
Always choose the lower wage.
Always choose the higher wage.
Jasmine 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) What is Jasmine's reservation wage?
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