Question

1) Luigi's Pizzeria is considering to hire two more workers, Jessie and Kathy. Suppose that the market wage for another worker is $80 per day. Jessie would generate a marginal product of 10 pizzas, while Kathy would generate a marginal product of 9 pizzas. If pizzas sell for $9 each, what should Luigi do?

a) Luigi should not hire either additional worker.

b) Luigi should hire only the first additional worker, Jessie.

c) Luigi should hire only the second additional worker, Kathy.

d) Luigi should hire both workers as long as their marginal products do not change.

2) Katherine works as a software marketer, earning $40 per hour. She currently works 45 hours per week. When her wage increases to $50 per hour, Katherine increases her work hours to 60 hours per week. Based on this information, we know that Katherine:

a) has a stronger substitution effect than income effect.

b) has a stronger income effect than substitution effect.

c) has an equally strong substitution effect and income effect.

d) would have increased her work hours if her wage had dropped to $30 per hour.

3) At what point does an individual labor supply curve begin to bend backwards?

a) When the substitution effect is at its strongest.

b) As soon as the income effect begins to overtake the substitution effect.

c) When the income effect goes away.

d) When the income effect is at its strongest.

4) If companies are required to offer more fringe benefits to workers, what would happen in the labor market?

a) Labor demand would increase.

b) Labor supply would increase.

c) Labor supply would decrease.

d) No shift in either labor demand or labor supply would occur.

5) If short job applicants are discriminated against in the workforce, how would this affect the demand and wages for short job applicants in the labor market?

a) Demand for short workers would increase and wages would rise.

b) Demand for short workers would decrease and wages would rise.

c) Demand for short workers would increase and wages would fall.

d) Demand for short workers would decrease and wages would fall.

Please answer all of the questions and explain each of the answers.

Thank you!

Answer 1

1. Ans: Luigi should hire both workers as long as their marginal products do not change

Expanation:

The Marginal revenue product of Jessie = $9 * 10 = $90

The Marginal revenue product of Kathy = $9 * 9 = $81

Both are greater than marginal cost, i.e. $80.

The rule is that a firm can hire the aditional workers as long as MRP is greater than or equal to MC.

2. Ans: has a stronger substitution effect than an income effect.

Explanation:

When wage increases, the worker will substitute lesure for work. So, the substitution effect is stronger.

3. Ans: As soon as the income effect begins to overtake the substitution effect

4. Ans: Labor supply would increase.

Explanation:

There is a positive relationship between fringe benefits to workers and the labor supply. Thats why Labor supply would increase.

5. Ans: Demand for short workers would decrease and wages would fall.